The Fraser of Allander Institute (FAI) at the University of Strathclyde said Scotland’s economy is likely to contract in the second half of 2022.
His projections assume the last two quarters of the year and the first quarter of 2023 will show declines amid broader economic challenges.
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This means that Scotland is likely to enter a recession – defined as two quarters of negative growth.
Economists are forecasting growth of 3.6 percent in 2022, followed by a -0.6 percent contraction in 2023, before returning to 0.8 percent growth in 2024.
This is a significant downgrade from the FAI’s previous June forecast.
Professor Mairi Spowage, Director of the FAI, said: “The data we are analyzing in today’s commentary points to weaker demand in the economy as inflationary pressures permeate every aspect of our lives.
“Consumer confidence is starting to weaken as sentiment on the outlook looks bearish. This has caused us to reduce our forecasts for 2023 and 2024.
“Our assumption is that given the general economic conditions, there is likely to be a slowdown in the economy in the second half of 2022 and into 2023.
“In practical terms, this means that Scotland is likely to enter a recession.”
It came as Deputy First Minister John Swinney warned that further cuts may need to be made in Scotland due to “colossal” pressures on public finances.
Mr Swinney said he feared the UK Government’s decisions would involve “cuts in public spending” which would have an impact north of the border.
He reiterated his warning that public finances are now more strained than they were during the 2008 crash and austerity years that followed.
Mr Swinney, acting finance minister, said the situation had been made worse by the fallout from Britain’s mini-budget.
Testifying to Holyrood’s Finance and Administration Committee, he said: “The pressure is absolutely colossal so I have had to come to Parliament already this year to announce cuts in public spending and I may have to do so more in the period of time remains.”
The UK government recently reversed plans to abolish the 45p income tax rate for high earners.
Tax changes in the South had meant more than £600m in extra spending would flow to Scotland, where income tax rates and bands are carried over.
However, Mr Swinney said that was now down 18 per cent, leaving a total of £540million.
He previously announced more than £500million in spending cuts in Scotland, warning that it was “just the beginning of the difficult decisions” that would need to be made.
Speaking to the Holyrood Committee, he said: “Obviously if the substance of the UK’s spending plans for the next financial year changes, which I think is the case due to the unfunded tax cuts and the market turmoil, then that could potentially have an impact. “
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