Page last updated at 23:49 GMT, Tuesday, 20 January 2009

Scots economy 'clearly weakening'

By Andrew Black
Political reporter, BBC Scotland news website

House building - generic
Scottish Enterprise suggested grounds for cautious optimism

Scotland's economic performance is "clearly weakening" amid the financial crisis, the Scottish Government's chief economic adviser has warned.

Andrew Goudie said that, while the jobs market had gone through a period of strength, it was now showing signs of weakness.

Dr Goudie said maintaining confidence in the enterprise and household sectors was crucial to weathering the storm.

He said firms had to be ready to take advantage of the end of the downturn.

But he said that could not easily predicted.

Meanwhile, Scotland's main enterprise agencies and the Federation of Small Businesses warned that viable firms were facing serious cash-flow problems because of a lack of credit.

Small businesses are the backbone of the Scottish economy
Federation of small businesses
In a briefing for the Scottish Parliament's economy committee, Dr Goudie said the economic weakness of the rest of the UK would cause problems for Scotland in the coming months because of their close trading relationship.

He said conditions in the UK economy "deteriorated significantly" in the second half of 2008, stating: "Scotland's economic performance is now clearly weakening, reflecting the impact of the financial crisis and credit crunch."

Dr Goudie told the committee that, while the Scottish labour market had "demonstrated considerable strength for some time" and remained buoyant: "It has, however, displayed recent signs of weakening."

The advisor highlighted independent forecasts predicting the Scottish economy shrinking between 0.4% and 1.9% in 2009 - but said many experts were providing "worst case" scenarios, and there was "conflicting evidence" on whether Scotland would be hit harder than the rest of the UK.

"Annual growth rates in Scotland have slowed since the last quarter of 2006, although they have remained relatively stable in recent quarters," stated Dr Goudie.

"Notably, quarter-on-quarter growth rates for Scotland over the past three quarters have exceeded those for the UK in aggregate."

'Downturn opportunities'

Scottish Enterprise told the committee the biggest single challenge facing businesses was access to finance.

But the agency expressed "cautious optimism" for the future, saying it was continuing to deal with development projects.

"Other firms are recognising opportunities from the downturn and are considering options that will help them once the downturn eases," added the agency.

"These include brand development, exploring new markets and potentially acquiring others within their industry."

The optimism was echoed by Highlands and Islands Enterprise - but the body told of an expanding construction company being rejected for credit by three banks and a manufacturing business whose overdraft facility was cut in half with immediate effect.

The Federation of Small Businesses told the committee that small and medium-sized ventures accounted for 99% of Scottish businesses and more than half of private sector employment.

"Small businesses are the backbone of the Scottish economy," stated the organisation, adding: "The most pressing concern is that, across Scotland, perfectly viable small businesses are facing serious cash-flow issues."

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