The Fraser of Allander Institute (FAI) said that for many “the big story” of Thursday’s Budget won’t be the tax and spending announcements of the Scottish Government but the “weak” forecasts for the Scottish economy published today by the Scottish Fiscal Commission.
“Recall that the SFC was established to provide independent forecasts of the Scottish economy following the passing of the Smith Commission powers,” said the FAI.
“These are the official forecasts upon which the Scottish budget is based.
“Their assessment of the outlook for the Scottish economy – if it turns out to be accurate – suggests a period of exceptionally weak growth for the next five years.
“Growth is projected to be below 1% each year to 2020-21 and only just above 1% by 2022-23.
“Such trends in Scottish economic growth have not been witnessed in 60 years.
“Like the outlook of the OBR for the UK as a whole, the SFC forecast that real household disposable income in Scotland will not see any growth before 2020-21.
“The SFC’s forecasts are more pessimistic both in comparison to the UK economic outlook (OBR forecast) and our own most recent assessment.
“Whilst we are more optimistic about medium term growth prospects, the SFC’s forecasts are broadly consistent with our ‘low’ productivity scenario from our most recent commentary.
“The SFC forecasts also suggest far weaker growth than the historical performance of the Scottish economy.
“Using the longest available Scottish GDP growth series (back to 1963) published by the Scottish Government, the average growth over the past 53 years was around 2% per year.
“Over the period from 1963 up to the Financial Crisis, average annual growth was 2.2%.
“These forecasts come on the back of two years of data suggesting that the economy has been relatively weak.
“This suggests that the SFC see this weakness as being of a more structural rather than cyclical nature.
“The major factors underlying this growth outlook are the SFC’s forecasts for continued weak productivity growth and a decline in the 16-64 population.”