Fraser of Allander Institute: Economic Commentary [February 2009]

Since we last reported in October there has been a considerable deterioration in the actual and forecast performance of all the major economies. In October we considered there was a ‘high probability’ that Scotland would go into recession in 2009. Now, we are certain that not only is Scotland currently in recession but that the recession looks likely to be as severe as that in the 1980s and could even be worse. The tentacles of recession are spreading throughout the economy with construction and financial service activity subject to sustained contraction, hotels & catering turning down from the first quarter of last year and real estate & business services contracting appreciably after March. Economy-wide GVA contracted by -0.8% in the third quarter and seems likely to have fallen markedly in the fourth quarter if the UK’s performance is any guide. Third-quarter manufactured exports decreased by 1% in real terms and by 0.4% over the year. Business surveys covering the fourth quarter period reinforce the expectation that the slowdown will be severe. In the labour market employment is falling and unemployment is rising.