The Scottish Government

This item was published during the term of a previous administration that ended in April 2007

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Economic impact of US terror attacks

05/10/2001

First Minister Henry McLeish and Scottish Secretary Helen Liddell today underlined their confidence in Scotland's firm economic foundations and long-term strategy in the face of the US terrorist attacks.

Hosting a business breakfast meeting with key economic partners, the First Minister launched Building for the Long Term: Understanding the Impact of the Terrorist Attacks on the Scottish Economy. The report was prepared to assess the implications for the economy of the events of September 11.

The First Minister stressed the Executive's long standing commitment to putting Scotland on a secure economic footing by creating a competitive, knowledge-based economy and by building on Scotland's resources and skills. This, he said, has equipped Scotland to withstand short-term shocks as well as create the conditions for future prosperity.

The report considers the changes in the world economy and highlights the implications for businesses in Scotland.

It concludes that the longer term strategic approach taken by the Executive is still relevant and appropriate but that expectations should continue to be reviewed as the implications of the attacks become more clear.

The First Minister said:

"The publication of this report is not the end of the process - it is only the beginning. It will be subject to ongoing review looking across all sectors of business.

"The Executive has been working closely with a wide range of businesses across Scotland and will continue to engage with the business community and trades unions to identify solutions to the challenges brought about by the terrible events in the US.

"We already have a framework in place to ensure Scotland is a place where business can thrive. We believe that the foundations already in place are sound and this is the right way forward - there may, however, be other measures required to respond to short-term challenges.

"I am determined citizens will feel secure and safe - we need stability in the current climate of instability brought about by the terrorist attacks. We must show confidence in these tough and testing times.

"Scotland is now a global player and we must now recognise that, as a global player, we are not immune from global events. We must demonstrate global solidarity.

"That is the context in which this report was written. It is a thorough piece of work which explores the impact the tragic events in the US have had on the Scottish economy. We will study its contents carefully and ensure that it is a working document which informs our decisions in this area.

"There is absolutely no doubt that this a challenging time for businesses and the economy. But that makes it even more important that we remain confident - we have so much to offer and can compete with anyone on the global stage."

Speaking in Glasgow where she was chairing the Clyde Shipyards Taskforce Meeting, Minister for Enterprise and Lifelong Learning, Wendy Alexander said:

"The Executive is investing heavily in Scotland's future. We are committed to enhancing skills, capitalising on world class intellectual assets, creating the connections needed to drive a thriving 21 ^st Century economy and growing our domestic business base.

"Putting these fundamentals in place will help us to achieve our long term economic aspirations. We want to see Scotland established in the upper quarter of OECD economies. The tragic events of 11 ^th September have already rocked the world's economies and we must recognise there will be grave consequences for some sectors in the short term.

"We are not complacent and where we can work with business to address the short-term impacts we will do so energetically. We are confident though that the hard work and commitment to a prosperous long term outlook will carry Scotland through the difficulties we face over the coming months."

The economic analysis raises four key questions:

1. Whether this shock suggests that we should revise our expectations of the direction that the global economy is taking in the medium/long term?
2. Whether the longer term strategic thinking and policy directions of the Executive are still appropriate ?
3. Are there immediate pragmatic steps or short-term changes of emphasis that might be adopted in the light of the immediate shock ?
4. Whether we have a systematic and even-handed approach to addressing the problems following from the range of exceptional shocks that have hit the Scottish economy in recent months and years?

Building for the Long Term finds that:

• the global economic environment was already characterised by increasing uncertainty and concern prior to September 11 with global growth heavily dependent on consumer confidence for many months.

• the economic fundamentals in the UK were widely agreed to be good, suggesting that the economy was relatively well-placed to withstand a downturn. Scotland has recorded steady growth, around the trend rate of 2.1 per cent for the last ten years.

• the Executive's strategic approach to economic development appropriately looks to Scottish enterprises competing effectively in an increasingly challenging and open world economy and acknowledges that Scotland's economic openness increases Scotland's degree of exposure and vulnerability to global events and trends.

On the economic impact of the attacks it states:

The attacks provided a sharp adverse shock to an already deteriorating global economic environment compounding and sharply intensifying the degree of uncertainty, generally increasing the probability of a sharper downturn, if not recession, in many economies.

Business and consumer confidence remain the primary indicators of whether any US recession is prolonged or short-lived.

Global uncertainty in several very fundamental respects will make the precise impact unpredictable and subject to considerable change for many months to come.

Quantification of the scale of the impact is impossible , but we can identify the areas of economic activity most affected.

The macroeconomic response in the US and UK has been significant.

Scottish economic growth will almost certainly decline by more than was previously anticipated in 2001 and 2002.

The report identifies tourism, aviation and electronics as the areas of the economy likely to be hit harder than others. Increasing fear amongst travellers, the increased costs and reduced availability of travel, and the general intensification of the global slow down are likely to reduce world travel and shift tourism travel between different markets.

The impact on aviation of possible reductions in routes on the tourism sector and on business more generally - including the important export and inward investor activity - will be very important while in electronics the report recognises significant emerging concerns prior to the attacks. The sector's recovery is predicted to be postponed into 2003-4.

Building for the Long Term concludes:

• That our expectations of the direction taken over the medium to long term need not be revised

• That the longer term strategic approach taken by the Scottish Executive is still relevant and appropriate following the terrorist attacks

• That these should continue to be reviewed as the implications of the attacks become more clear

• That interventions to alleviate the impacts by the Scottish Executive should be decided upon the following criteria:

directed to those impacts which are exceptional rather than simply related to the continuing downturn

Whether those affected would be able to withstand the impacts without long term damage to their productive potential

Whether the restoration of more normal levels of activity for those most affected is likely to be seriously delayed, and;

Whether the knock on effects from the impact on those most affect is likely to be significant for other elements of the Scottish economy and its longer term development capacity.