ARE we growing or are we slowing? Several pointers in the past week merit pause for thought about the recovery pace.
So many and varied have been the positive signals about our economic performance that we looked to be roaring into 2014 with barely a cloud in sight. But matters never proceed in an upward linear direction for long. There are always bumps on the road, changes in pace that remind us not just of the fragility of recovery but the distance we have still to travel just to reach pre-crisis levels of output.
Last Friday brought news of flat industrial production and a 4 per cent fall in construction output in November. In addition, purchasing managers’ survey data showed services activity moderating to a six-month low in December.
Global Insight economist Howard Archer reckons that overall economic growth in the fourth quarter of last year slowed from the 0.8 per cent quarter-on-quarter rate achieved in the two previous quarters. This suspicion is reinforced by the overall evidence that retail sales lost significant momentum in the fourth quarter. As a result he is trimming his GDP estimate for the fourth quarter from 0.8 per cent quarter-on-quarter to 0.7 per cent.
How fares Scotland in all of this? For most of last year the economy here performed relatively well compared with the other nations and regions in the UK. Our unemployment rate fell below the UK average and growth has broadly reflected the upward trend.
But the latest UK Cities & Regions Chart Book from Capital Economics suggests that while English regions outside London and the South-east are catching up, Scotland’s recovery may have stalled in the final quarter of last year.
It finds that the South-East, the East Midlands and, of course, London were leading UK economic growth in the closing months of 2013 as measured by the November Markit PMI output index. The South-East was the fastest-growing region, while Scotland had the lowest activity balance score: 55.2, compared with 59.8 for the East of England, 62.1 for the South-West and 62.8 for the East Midlands.
The North-East and Northern Ireland no longer languished quite so markedly behind other parts of the country. But the latest evidence suggests that output growth in Scotland may have stumbled in late 2013 while employment went sideways, after a first half of the year in which Scotland broadly tracked the UK.
The Bank of Scotland/Markit PMI activity index for Scotland made for uncomfortable reading. The decline in the month was the largest in the UK. The survey’s employment index showed a more robust performance. However, Labour Force Survey data showed little improvement in the three months to October compared with the immediate preceding three months, in contrast to “some useful increases” in the first half – which were markedly stronger relative to the UK.
The quarterly GDP figure for Scotland up to the April-June period looks similar to that for the UK, with a 0.6 per cent rise quarter-on-quarter and up 1.8 per cent on a year earlier. “The evidence seems to be that manufacturing and construction were doing well, services a little less so,” says Capital Economics. “In particular, financial services and the broad transport and communications sectors both struggled.
“The former is not a particular surprise (fund management has probably done well, pension and life assurance business much less so) but the latter is more a matter of concern, given that the communications sector has been growing so strongly at the UK level.”
Regional indicators for the UK are due to be published tomorrow with the Lloyds Bank/Ulster Bank/Bank of Scotland purchasing managers’ survey, covering December. A key issue may be whether last month’s indications of sluggish performance from Wales and Scotland are repeated. We need to see a few more quarters of data before a firmer assessment can be made as to whether this is evidence of some structural weakness or the temporary friction of data that will iron itself out in time.
A more detailed picture is provided by the ever-useful Scottish Economy Monthly Report from Inverness-based Tony Mackay. He estimates Scottish output was running 1.2 per cent higher in real terms than the October 2012 figure. UK Treasury monthly summaries of some 25 independent forecasts give a figure for UK growth overall of 1.4 per cent in 2013 and 2.4 per cent in 2014. Mackay’s forecast for Scotland this year is 2 per cent.
Most of the recent economic indicators have been positive and many commentators have revised upwards their growth forecasts. However, December looks to have been a mixed month. On the plus side was Tesco Bank’s announcement of plans to create 650 jobs in Scotland and news of another encouraging fall in unemployment. But there were also setbacks.
Markedly positive investment announcements included Premier Oil and partners applying for permission to develop the Catcher oil field and two nearby fields in the North Sea, with an estimated investment of £1.5 billion. In addition, Scottish ministers approved the £800 million Coire Glas pumped storage hydroelectricity project above Loch Lochy in the Great Glen.
Against this, however, were cancellations of offshore wind farm projects, including the proposed 300-turbine Scottish Power Renewables Argyll Array project.
Elsewhere, the Scotch whisky industry looks to be going gangbusters, with plans by Macallan to invest £100m in a new distillery on Speyside, while Diageo plans a £30m expansion at its Mortlach distillery.
And the British Chambers of Commerce continues to strike a positive note, with its latest Quarterly Economic Survey for the October-December period. This, says Scottish Chambers chief executive Liz Cameron, “indicates that Scotland’s economy is continuing to show signs of strong growth towards the end of 2013, and our hope is that this can be improved upon during 2014”.
Scottish Chambers will be publishing its detailed survey of business performance this week. For all the variations in pace this might reveal and reminders of the constraints on household incomes and domestic demand, the overall direction of travel should be in little doubt: heading upwards.
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