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Forecasts of the Scottish economy [June 2012]

Allan, Grant (2012) Forecasts of the Scottish economy [June 2012]. Fraser of Allander Economic Commentary, 36 (1). pp. 24-37. ISSN 2046-5378

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Domestically, Scottish consumers are facing continuing income growth weakness and have increased savings, cutting back on spending. Falling inflation will help relieve the pressure on household budgets, but inflation is not predicted to fall below target until the end of 2012. Government spending reductions will focus on current spending after significant reductions in capital spending in 2011-2 – alongside private sector investment falling – damaged activity in the construction sector through 2011. Outside Scotland, the Euro area seems unlikely to have the same political or institutional shape at the end of our forecast horizon. In light of mixed but generally weak survey data we have revised down growth prospects for 2013 and 2014, and held our forecast for growth in 2012 constant at 0.4%. The number of jobs in Scotland have fallen by just over 20,000 each year of 2010 and 2011 and are forecast to decline to the end of 2012. Unemployment forecasts have been revised down as employee jobs series for Scotland have been themselves revised, and we are now forecasting that (on the ILO measure) that the unemployment rate will increase to 9.3% by the end of 2012. In addition to our central forecast, we explore the consequences for the Scottish economy of two seismic events affecting the Euro area: the exit of Greece for the Euro currency, and the complete breakdown of the single currency area. These are discussed.