The latest Scottish GDP figures add to a picture of an economy that is slowing down, perhaps to eventually start to go into decline. While the figures are still positive there is a sense that growth is easing, output is reducing, employment may have almost peaked, and optimism is guarded. Yet all of the figures remain positive, so what is the problem? The problem is that there may be more bad news just around the corner.
The wider global economy has clearly taken a knock after China experienced a decline in activity, causing large falls in commodity prices, the UK stock market taking a hit, and concerns that part of the UK economy may be a bit frothy built on rising personal and corporate debt.
Of course there are justified concerns about parts of the Scottish economy, not least the oil and gas industry, which has to impose severe cost-cutting to reflect the continued and apparently endless decline in the oil price. The current round of job losses are occurring at a time when companies will likely have got an advance price a year or so ago of $50-$60 a barrel for the oil currently being produced. The greater concern is that Aberdeen has 740 enterprises employing 250 or more workers – representing 32.2 per cent of all large companies in Scotland.
We need to ensure the Scottish economy is able to adjust and compensate for the potential loss of income from a future decline in oil and gas activity.
Part of the growth could be generated from an expanded manufacturing sector. Manufacturing in Scotland is the second largest sector after mining, quarrying and utilities (which include oil and gas). Greater encouragement for manufacturing would enhance the Scottish economy enormously.
It is a large-scale employer, generates hundreds of millions of pounds, and, whilst not immune to global changes such as the oil price, should be more broadly diverse to reduce the overall impact of any single sector downturn.
Equally, the retail trade in Scotland is the third highest by turnover but can be overlooked in favour of more “sexy” sectors which can be high-profile but do little to push the wider economy forward.
Scotland needs a balanced economy, one that reflects the skills, the interests and activities of its population and its potential customers. We need to ensure that the business environment is right to encourage dynamic entrepreneurs to feel that Scotland is a place to allow their businesses to grow and meet their potential.
The current economic slowdown should be seen as an opportunity to reflect on what direction the future economy of Scotland should take. Reduced dependence on oil and gas could be seen as an opportunity rather than a calamity.
l Martin Gill is head of BDO LLP in Scotland