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The week's weak outlook

Douglas Fraser | 12:47 UK time, Saturday, 22 January 2011

There are echoes of Franklin Roosevelt from the depths of the 1930s Depression, when he said American had nothing to fear but fear itself.

Even though this week's growth figures showed Scotland - in the third quarter of last year, at least - comfortably into growth territory, at 0.5% for the quarter, confidence levels are in the same gloomy position as the depths of recession. And recovery depends on confidence.

Looking at the week past, you could cheer some renewable energy developments and a second month of Scotland's unemployment figures closing the gap with the UK as a whole.

But there's lots more that fits with the foggy weather clamped down on the Clyde as I write.

That growth rate is lagging the UK figure for the same quarter, which was 0.7%.

The positive spin put on a second quarter growth at 1.3%, ahead of the UK's 1.1%, has been silenced.

These are backward-looking figures, and coming out of recession, we shouldn't be surprised that the official registrar, Accountant in Bankruptcy, this week released figures that show company insolvencies were up 46% last year, to 1098.

Nor should we be surprised that both the Scottish Retail Consortium and the Office of National Statistics (covering the UK as whole) this week reported December's shopping figures were dire. The weather explains a lot of that.

Remember that December is the month when retailers need to make their profits, yet only food sales were on the rise, helped by inflation.

So we shouldn't be surprised to see the retail figures feeding through to the bankruptcy figures during 2011.

Property barometer

It's that forward view that looks most concerning.

Chartered surveyors were this week telling us about depressed house prices.

One newspaper quoted one of Scotland's larger estate agents talking about "a lost decade" in the housing market.

You could argue that prices haven't fallen as far as they should, or as some would like, to help them get on the bottom rung of the property ladder.

But the impact of stagnant prices feeds through to confidence generally, as house prices have, for decades, been the barometer by which many Britons measure their sense of wealth and financial wellbeing.

Scottish Chambers of Commerce issued its quarterly survey of members this week, saying prospects for the start of this year look "very weak", particularly for those companies that look to the public sector for contracts.

Exports offer some hope, but business optimism "continued to decline in all sectors" towards the end of last year.

Even though construction was the brightest side of the third quarter growth figures, its optimism about this year - as with manufacturing and tourism - is at its lowest ebb since the start of 2009. That was the worst part of the recession.

CBI Scotland was next to offer its survey evidence, and it was more of the same.

Domestic orders fell unexpectedly last quarter, with only exports holding out much .

Similarly, input prices were on the way up, but with little flexibility to pass them on in output prices.

That's a contrast with the rest of the UK, where the CBI's industrial trends survey reported on the same day that it hadn't seen such an upswing in manufacturing prospects for more than 20 years.

In its regular measure of consumer confidence across the UK, Nationwide Building Society reported a December uptick after a very downbeat autumn.

It wasn't so much that respondents were appearing more positive, but that they were a bit less negative about the coming six months.

That's a sort of progress for the UK as a whole, but it's hard to see much in Scotland that matches it.

It's not such a great start to the year.

Comments

  • Comment number 1.

    There doesn't seem to be much in the way of clear thinking going on here in England, so I wonder if the Scots can take a lead on a question I cannot answer. In 1967 Milton Friedman outlined natural rate theory which predicted the domestic stagflation that took hold after OPEC I in 1973. Spooling forward in time, Robert Shiller at Yale predicted the Dotcom bubble in 1996 in a conversation with Alan Greenspan, which he ignored. Shiller then wrote his book Irrational Exuberance in 1999 to explain why the bubble, which popped in 2002, was occurring. He then wrote the second edition of Irrational Exuberance in 2004 which predicted the global houing bubble, which popped in 2006. Paul Krugman also predicted the two bubbles. So the question is simple: why did Friedman have such an influence but Shiller and Krugman currently have no influence? The New Keynesians should be in the ascendant as their model explains why bubbles happen and how to fix the economy today and in the future. I have no answer to this.

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