Scotland’s economy edges close to recession — but growth forecast to return in the coming months

The Fraser of Allander Institute (FAI) published its latest Economic Commentary yesterday. You can read it here. The main points from the press release:

  • With the Scottish economy shrinking in the final three months of 2016, Scotland is just one data release away from re-entering recession (defined as two consecutive quarters of falling output) […].
  • However, the Institute forecasts that the Scottish economy will pick-up in 2017, although its central forecasts for growth of 1.2% in 2017, 1.4% in 2018 and 1.6% in 2019 are below trend with Scotland likely to continue to lag behind the UK as a whole.
  • The Institute’s new analysis finds that Scotland’s recent economic woes can no longer be explained just by the downturn in the North Sea or indeed by Brexit. Instead, Scotland’s economy seems to be stuck in a cycle of weak growth, declining confidence and poor investment and net export figures.
  • With Holyrood’s Budget now much more dependent upon the relative performance of Scottish tax revenues, getting the economy moving again must be a priority for everyone with a stake in Scotland’s long-term prosperity.

FAI director Graeme Roy added:

“What has been surprising is how little the economy has featured in recent policy debates in Scotland — including in the General Election. With Holyrood now responsible for over £11bn of income tax revenues, it is vital that politicians from all sides come forward with practical policy initiatives that will support businesses, secure new investment and create jobs whatever the constitutional settlement.”

In the “Economic Perspectives” section of the Commentary, David Eiser looks in detail at the new fiscal powers being devolved to the Scottish Parliament as part of the Fiscal Framework agreed in 2016. These include, since April of this year, responsibility for a large proportion of income tax revenues (with some exclusions, such as the personal allowance), and from 2018 complete control over Air Passenger Duty. Then in 2019 the Scottish Government will start receiving half of VAT revenues raised in Scotland.

The report includes a nice summary of the various devolved taxes:

Fraser of Allander Institute: Devolved, shared and assigned tax revenues in Scotland
Source: Fraser of Allander Institute Economic Commentary Vol 41 No 2, June 2017 — Table 1, page 27.

Growth figures for the first three months of 2017 are due to be published on 5 July.

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