Scots feel force of recession: Elizabeth Heathcote reports that although times are hard there is still optimism about recovery

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The Independent Online
UNEMPLOYMENT in Scotland is below the UK average for the first time since Department of Employment records began - but it is unlikely to remain so for long. The plague recession may have taken its time spreading north but migrate it has. If the South-east has chronic pneumonia, Scotland is down with the flu.

According to the latest regional trends survey from the CBI, Scottish output over the next four months will fall 11 per cent, a drop matched only by East Anglia; this reflects orders down 14 per cent in the past four months and 27 per cent in the previous period. Planned capital expenditures for the next year are lower than almost for any other region.

'We are hearing daily of redundancies and closures,' Mary Picked of the Scottish TUC said.

'In January 1991, Scotland was still doing very nicely and talking in terms of first in, last out,' said Ewan Marwick, secretary and chief executive at the Glasgow Chamber of Commerce. By last summer it was becoming clear that things were not going to be that easy and it has been downhill ever since. Virtually every sector of the economy is suffering to some extent.

Grim though this might seem, it is child's play to a country that suffered so intensely in the last recession. Fewer companies than in any other area are operating below capacity, reflecting how shallow the recession is there compared with the rest of mainland Britain.

Much has changed since the Seventies, as the economic bias has shifted from heavy to light industry; British Steel's decision to close Ravenscraig was a belated part of this process. The government agency Locate in Scotland, designed to encourage inward investment, has enjoyed success; in 10 years it has attracted pounds 4.5bn of fixed capital investment. Most has been in electronics and advanced engineering and Scotland's 'Silicon Glen' has become a symbol of the future. Overseas recession has, Locate in Scotland says, had 'some effect' on the number of new firms showing an interest in the region.

The service sector has grown in importance, increasing from 48 per cent of regional GNP in 1974 to 62 per cent today. The bulk of this expansion has been in the financial sector.

These changes, and the reduced emphasis on manufacturing capital equipment in particular, left Scotland less vulnerable to cyclical changes elsewhere. 'Scotland unhitched itself from the accelerator,' Mr Marwick said. 'It got out of the business of manufacturing heavy machinery for people to order as the business cycle got under way and then cancel as it slowed.'

Other factors kept recession temporarily away. Scots avoided the excesses of the South in the late Eighties and as a result had more to spend when interest rates started to rise. A net 11.4 per cent of Scottish income was saved in 1987 compared with just 2.7 per cent in the South-east. This is partly because the housing boom was late and relatively modest: house prices remained far more stable in Scotland than in England.

Oil protected Scotland too, and created a flourishing microcosm around Aberdeen. Oil cycles bear little relation to the economy at large. In 1986, as other businesses boomed, the barrel price fell by two-thirds and Aberdeen slumped. The industry was forced to become profitable on this dramatically reduced turnover and emerged from an abrupt rationalisation in 1988 in a position to invest again.

Although the North Sea fields are now considered 'mature', investment has been assured since 1988 to meet safety standards set in the wake of the Piper Alpha disaster. BP estimates the total expenditure by all companies at pounds 1bn. This fuelled a local boom.

But the rump of investment has now been made. Although Aberdeen itself still seems relatively healthy - as an indication, house prices were 9.9 per cent higher in the second quarter of this year than the same period in 1991 - certain oil industry supply companies are suffering; so as a result are the areas in which they are located. The platform manufacturer McDermott, which is based near Inverness, recently made more than half its workforce redundant.

'The industry is going through a period where jobs are going to be extremely scarce,' Ronnie Mathieson, the company's employer relations manager, said. 'Ups and downs are a feature of the industry. The difficulty this time is that the outlook generally is so depressing.'

As buffers such as oil have faltered, Scotland has been exposed to the full force of recession. The home market might be resilient and export rates higher than the UK as a whole, but the bulk of trade is still conducted with the beleaguered South.

Tourism is a good example. Last year, Scottish and English holidaymakers brought a 10 per cent increase in tourism business, even though the number of overseas visitors remained flat. This season, however, the Scottish Tourist Board estimates figures will be down by 5 per cent despite an increase in foreign visitors. The English are to blame: they account for 50 per cent of Scotland's visitors, and a third of these come from the recession-blasted South-east.

The most resilient sectors seem to be those that export to less affected areas or sell within Scotland. 'Overall, services are probably doing better than manufacturing,' said Charles Burton, joint managing director of the consultancy Business Strategies, which produces regional surveys in partnership with the CBI. 'They tend to be more dependent on local demand decisions.'

The consensus is that the optimism expressed by Scottish businesses is justified. In the worst case, it is argued, the economy will improve alongside the rest of the UK but there is a chance that recovery could reach Scotland sooner. 'The signs are that things are starting to improve but from a low base,' David MacLehose, director of the CBI in Scotland, said.

And although few will admit it, there is some consolation to be had in the plight of the South. 'In 1979, we comforted ourselves that places like Manchester had joined us in some of the pain we had suffered during the Sixties and Seventies,' Mr Marwick said. 'This time we can comfort ourselves that London has joined in, too.'

(Photograph omitted)

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