Outlook and appraisal [November 2014]

The Scottish economy delivered strong economic growth in the first half of the year in the run up to the referendum but there are signs that growth may be beginning to slow. Growth in the wider global economy and the UK economy appears also to have begun to slow recently. The IMF Managing Director Christine Lagarde fears we may be entering a phase of weak growth which she has called the ‘new mediocre’. Others such as ex US Treasury Secretary and leading economist Larry Summers go further and argue that the world economy now faces a situation of secular stagnation, a permanent deficiency of demand – caused, for example, by a permanent slow-down in the growth of working population - which can’t be overcome even with near-zero interest rates. The recent indicators of slowing demand both at home and abroad, falling real wages, rising levels of household debt, the prospect of more substantial UK fiscal austerity to come, and the deeper concerns about secular stagnation raise several questions. Questions that can be posed but cannot be definitively answered, such as whether the Scottish and UK economies are now poised for a period of slower but sustainable growth, or whether growth will slow and then slip back into recession?