SCOTTISH Chambers of Commerce says it has “very acute fears” the economy north of the Border could fall into recession, citing the potential impact of the Brexit vote and recent weak performance.
Its latest quarterly survey, published today, signals the Scottish economy was in a fragile state in the second quarter.
Scottish Chambers’ quarterly economic indicator also points to a sharp slowdown in the overall growth of services companies not involved with the oil and gas sector. Those serving the oil and gas sector continued to see activity decline.
Global fund management giant BlackRock forecast on Tuesday that the UK economy as a whole would fall into recession in the coming year in the wake of the June 23 vote to leave the European Union.
Asked for his view of the chances of the economy north of the Border going into recession, Scottish Chambers’ Garry Clark replied: “I think in Scotland the economy is on a knife-edge. We have seen that over the last three reported quarters [in official data]. Anything is possible in terms of tipping back towards a recessionary situation.”
The latest available official figures show Scottish gross domestic product grew by only 0.2 per cent in the fourth quarter of 2015. This weak expansion followed contraction of 0.1 per cent in the third quarter, and growth of only 0.1 per cent in the three months to June last year.
This is an even weaker economic performance than that in the UK as a whole, which has suffered protracted below-trend growth amid the Conservatives’ austerity programme. The oil and gas sector’s woes have weighed on the broader Scottish economy.
Mr Clark, who heads Scottish Chambers’ economic development intelligence unit, highlighted the “flat” position north of the Border in the three months to June signalled by the business organisation’s latest survey.
He said: “Given that we have a fairly flat performance in quarter two and the potential impact that Brexit could have, obviously we are concerned about the Scottish economy in particular. [What happens to the] UK economy as a whole remains to be seen. [For the] Scottish economy as a whole, we continue to have very acute fears in terms of moving into a recessionary position.”
Mr Clark highlighted the survey’s finding that, within the Scottish construction sector, the second quarter had seen the first fall in new housebuilding contracts since the third quarter of 2013.
He said: “It was the construction sector that kept Scotland out of recession last year. Obviously, we are seeing a much weaker performance in the construction sector.
“Given that sector has been keeping us above water, for us to see that dip into some negativity is a concern for the wider economy and [adds to] recessionary fears.”
The survey also shows a fall in new public sector construction contracts in the second quarter.
The Scottish manufacturing sector returned to revenue growth in the second quarter, after contraction in the opening three months of 2016, but the pace of increase was way adrift of that a year earlier.
The survey, conducted by Strathclyde University’s Fraser of Allander Institute, signals a fifth consecutive quarter of falling profits in Scotland’s financial and business services sector as a whole. This reflects the continuing difficulties for firms dependent on the oil and gas sector as well as the overall weakening of growth for other Scottish services companies.
The survey also points to a slowdown in Scottish tourism sector growth in the second quarter. And Scottish Chambers noted there had been “no real signs of improvement” in the retail and wholesale distribution sector.
Neil Amner, who chairs Scottish Chambers’ economic advisory group, said: “Our survey shows that Scottish business performance was generally muted during the lead-up to the EU referendum but, of course, the burning questions are how the vote for the UK to leave the European Union will affect businesses and what steps our governments in the UK and in Scotland should take to ensure that Scotland’s businesses continue to be the dynamo of economic growth.”
He added: ““There were some signs of weaknesses in investment and difficulties in recruiting skilled workers over the past three months, and these are illustrative of concerns which may persist after the Brexit vote.”
Mr Amner highlighted the need for clarity, in the wake of the Brexit vote, “on the future of talented individuals currently working in Scotland”.
He added: “Everyone must have the confidence that they will be able to fulfil their long-term ambitions in Scotland, whether they currently live here or not.”
Mr Clark expressed concerns that young people in the UK might, as a result of the decision to leave the EU, view the country as a “backwater” and seek their fortunes elsewhere.
The Fraser of Allander institute yesterday forecast Scottish Government figures due next week would show the economy north of the Border grew by a significantly below-trend 0.3 per cent in the first quarter of this year.
A poll published by Reuters showed 39 of 60 economists forecasting the Bank of England would cut UK base rates by at least a quarter-point today from their record low of 0.5 per cent to try to fend off a recession and reassure markets in the wake of the Brexit vote.
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