Page last updated at 23:18 GMT, Tuesday, 24 June 2008 00:18 UK

Credit crunch has 'mixed' effect

By Andrew Black
Political reporter, BBC Scotland news website

House for sale signs
Scotland's housing market was said to be more resilient

The global credit crunch has had a mixed effect on the Scottish economy, according to a new report.

Despite downturns in industry, independent experts have predicted economic growth to speed up in 2010 and employment is at an all-time high.

The research was produced for the Scottish Parliament's economy, energy and tourism committee from independent and official sources.

MSPs on the cross-party committee are to consider the findings.

The research on the effects of the credit crunch, linked to losses in the US sub-prime mortgage market, was produced by the parliament's information service Spice.

"The evidence to date of any impact of the credit crunch on the Scottish economy is mixed," the report stated.

Mortgage cuts

"GDP growth remained above trend in 2007, quarter four, but construction and the financial sectors saw quarterly declines in output during 2007."

The report added: "Employment is at historically high levels and the claimant count is low - however the latter has begun to edge up since January."

Construction, which accounts for almost 7% of Scotland's GDP, grew strongly between 2001 and 2006 but has since been in decline, with house builders such as Taylor Wimpey, for example, cutting 90 jobs in Scotland and 600 in the UK overall.

Retailers painted a less gloomy picture, with the Scottish Retail Consortium saying total sales in March and April 2008 were up by 6% on the previous year, compared to 1% for the UK.

But the latest purchasing managers index, a survey by the Royal Bank of Scotland of more than 600 Scots manufacturing and private services, indicated output dropped over the past two months and the rate of new businesses has been in decline.

High street shoppers
Retail sector growth in Scotland was reported as strong

The report also pointed to speculation Scotland would be more resilient to house price falls because homes were cheaper than the rest of the UK.

Average prices in Scotland ranged between 145,000 and 163,000 - between 27% and 34% lower than the UK average, but the housing market north of the border has been slowing, according to the research.

In the first quarter of 2008, the number of mortgages issued fell by 20% from the same period in 2007, causing a 16% drop in the value of loans, while the value of house sales over same period fell by almost 10% to 4.1bn.

And house sales registered between January and March fell by 16% compared to the same period in 2007, from 32,791 to 27,501.

Between last April and the start of this year, lenders cut the number of mortgage products on the market by almost half, from 7,931 to 3,906.

However, the Scottish Government has launched a drive to boost house building to at least 35,000 a year by the middle of the next decade and give greater opportunities for people on lower incomes to own homes.

None of the latest economic forecasts predicted recession for the Scottish economy but some saw a mixed future.

Experian said growth in Scotland would drop from 1.7% to 1.6% in 2009, before rising to 2.5% in 2010 - faster than UK growth for the first time since 2001.

Ernst and Young said growth would trickle up from 1.5% now to 2.3% because of high energy and food prices.

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