Economic forecasting seems to many to be as much art as arithmetic. Figures from the Government are constantly subject to review and revision. There’s also a concern amongst business leaders that statistics paint all too gloomy a picture of what is happening in the wider world. Those gloomy images are picked up by the media and help to dampen the expectations of their readers and viewers. It’s important therefore too see forecasts for what they are – the best estimates available at the time.
The accountants, Ernst & Young, have long had a group known as the Item Club which models the economy using the same techniques as the Treasury. Its reports are worth considering because they gave an idea of the information Government ministers, including the Chancellor, are being given. They help to show the framework in which Mr Osborne takes his decisions on the current spending review, expected this week.
It latest report on Scotland warns that the country has to expand its export base. The group described this as “essential” because of the dominance of the whisky industry. It points out that this sector alone now accounts for 28% of all Scottish exports – that’s 10% up on a decade ago.
Edinburgh’s Quarter Mile
Professional Services growing more slowly here
However, the group also believes that things can only get better – if only a little! It’s revised its prediction for growth in the Scottish economy upwards for this year – but only marginally to 0.8%, that’s up 0.1% on its previous predictions about puts Scotland only slightly behind the rest of the UK. The reason for the change in outlook came about because of two factors – the end of 2012 was better than expected and there’s also been an improvement in the global economic picture.
Looking beyond the current year, the Club sees steady growth in the Scottish economy amounting to 1.4% next year and even a return to pre-crisis growth figures of about 2% in 2015/16. But it’s still lagging behind the rest of the country, in part because Scotland has a smaller stake in faster-growing sectors and larger share of sectors where declining outputs are expected. However, the report argues that Scottish businesses are performing, on average, at least as well as their UK peers.
Dougie Adams, senior economic adviser to the Ernst & Young Scottish ITEM Club, pointed out that “the recovery of global trade and a gradual increase in business confidence points to a better year, but it’s fair to say that the Scottish and UK economies have been stuck in the slow lane since the financial crisis. There has been a failure to return to what was once taken for granted as normal growth.”
The report also looked at the prospects for employment and concluded that the slow growth of the economy would result only in a small increase in the number of jobs created; however it thought that the “momentum in the labour market” would pick up towards 2015. Scotland, it thought, would have to wait until the end of the decade for employment levels to mirror pre-crisis levels.