Disorderly Brexit means Scots recession – Allander

The latest economic commentary from the University of Strathclyde’s Fraser of Allander Institute (FAI) and partner Deloitte has laid out different scenarios for growth in Scotland over the next few years.

The FAI said these include scenarios ranging from a disorderly exit from the EU, “in which case Scotland is likely to enter recession,” to a scenario where confidence returns, unlocking business investment and boosting the economy to nearer trend growth.

The FAI’s central forecast, based on an orderly departure from the EU at some point in 2019, predicts growth of 1.1% in 2019 and 1.4% and 1.5% for 2020 and 2021.

However, the FAI has also developed an illustrative worst case scenario where the UK leaves the EU in a disorderly fashion.

“If this was to occur, output could fall by around 5.5% from peak to trough (with a fall of 2.1% in 2019 as a whole compared to 2018) …” said the report.

Professor Graeme Roy, Director of the Fraser of Allander Institute, said: “Last week’s announcement to move the deadline for the UK’s departure from the EU to October has helped to reduce the imminent threat of a ‘no deal’ outcome impacting upon the Scottish economy.

“However, it has only ‘kicked the can down the road’ with little evidence so far of UK policymakers being able to agree a compromise approach.

“The risks to the economy therefore remain high.

“Moreover, the nature of the UK’s withdrawal from the EU is but one step in the process – the negotiations on the terms of the UK’s future relationship with the EU have yet to begin in earnest.

“But Brexit should not be the only focus of attention.

“One consequence of the Brexit debate is that it has left little room for discussion of the emerging structural challenges and opportunities our economy is facing.”

John Macintosh, tax partner at Deloitte said: “The latest Commentary underlines that while Scotland’s economy continues to deliver high levels of employment and steady, if low, growth, there is a pressing need to encourage investment and to improve productivity.

“This should increase our long-term growth and help generate an improvement in real earnings growth and living standards.

“While business tries to adapt to working within an environment where uncertainty is the new norm, a cautious approach is understandable.

“However, for Scotland to address its structural economic and fiscal challenges and opportunities, this quarter’s Commentary highlights that a bolder and more collegiate approach is required.

“Business should continue therefore to try to think differently, adopting a more ambitious and medium-term outlook by investing in innovative and collaborative strategies as well as talent. 

“Such an approach should help to create a more robust business climate that can be more agile to any challenges and opportunities as they arise.”

Professor Roy added: “Next month will mark 20 years since the first elections to the Scottish Parliament, and despite progress in some areas, the growth challenge is arguably still something that remains inadequately addressed in the political discourse in Scotland.

“Key government targets on the economy – including in growth, exports and productivity – have all been missed.

“One particular area of concern for the Scottish Government is the emerging outlook for some of Scotland’s devolved tax revenues, which suggests that revenues may have performed worse than forecast in recent years.  

“Those who established the Scottish Parliament had the hope that politics here in Scotland would usher in a new era of collective effort and decision making.

“With Brexit marking the most significant structural change in our economy in over 40 years, the need for that approach is now more crucial than ever.”

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.