Outlook and appraisal [March 2003]

Ashcroft, Brian (2003) Outlook and appraisal [March 2003]. Quarterly Economic Commentary, 28 (1). pp. 3-6. ISSN 0306-7866

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    Abstract

    Scottish economic growth improved in the third quarter of last year on the latest Executive data. UK growth slowed in the fourth quarter and this coupled with Scottish business survey evidence suggests a slowing of Scottish growth in that period. It is therefore probable that Scottish GDP will have fallen slightly in 2002 as a whole. Evidence for both the Scottish and UK economies suggests a further weakening of growth during the first two months of 2003. Yet the underlying position in the world economy, with the UK performing above the EU average and better than most OECD countries, suggests a gradual strengthening of demand with recovery occurring during the remainder of 2003 and full recovery in 2004. However, the prospects in the short and perhaps medium run are clouded considerably by the war in Iraq. In view of this uncertainty, we offer three forecasts for the Scottish economy that reflect different assumptions about the outturn of the war: a benign scenario, which forms our baseline forecast, an intermediate scenario, and a worst scenario. In the baseline case, where the war concludes fairly quickly with minimal disruption to oil supplies and tourism, we are predicting that Scottish GDP will grow by 1.1% this year and 1.8% in 2004. Our forecast for 2003 has been revised downwards by 0.3% points in recogni- tion of the weakening of the economy during the first two months of this year. The intermediate and worst scenarios assume that the war produces progressively greater damaging effects on the world economy and hence on Scottish economic performance. In the worst-case the war effectively pushes the Scottish economy into recession. There are clearly significant uncertainties in the days ahead, but our best judgement is that the benign scenario is the most likely.