It is generally not done for journalists to talk up our economic prospects. Doom and gloom is what we do best. And for the past 18 months there’s been little else but doom and gloom. Our growth rate has slowed, the latest official readings indicate growth of just 0.1 per cent in the second quarter. And over the year to the end of June we are trailing 1.5 percentage points below the UK as a whole.
Scottish Government ministers have cited Brexit uncertainties as a chief cause of our malaise and continued to warn of a Brexit-induced slowdown ahead. A Fraser of Allander assessment to the Scottish Parliament forecast that Scotland could lose between 30,000 and 80,000 jobs as a result of Brexit. Over ten years or more, Scotland’s GDP could be between 2 per cent and 5 per cent lower than would otherwise be the case. Its “worst case scenario” predicts real wages would be seven per cent lower and numbers employed 3 per cent lower.
No need for me to add to the gloom: low growth, stymied pay growth, poor investment and jobs foregone: few opportunities are lost to accentuate the negative. But there are features of our condition today in danger of being lost in this despair. And to redress the imbalance, here are five of them.
Where better to start than with the Scottish Government’s chief economic adviser, Dr Gary Gillespie? His latest report on Scotland’s economic performance, out last week, highlights that it has strengthened in 2017 with growth picking up over the first half. Full-time employment, far from falling, has risen by 55,000 over the past year, while sectors linked to the oil and gas supply chain have grown. And while he predicts only an overall modest rate of expansion – not exactly Galloping Gary here – growth prospects remain positive at about 1 per cent for this year and next.
Much of this relatively upbeat tone is due to the performance of Scotland’s labour market. Defying the predictions of a rise in unemployment, the percentage of those in work now stands at 75.2 per cent, up 1.1 percentage points on a year ago. Meanwhile the unemployment rate has fallen to 3.9 per cent, down 1.2 percentage points since last year.
In another welcome development cited by no less than Fraser of Allander, two recent concerns in the labour market data – youth unemployment and economic inactivity – appear to have receded. Youth (16-24 year old) unemployment is at a record low rate of 8.4 per cent – the lowest of any part of the UK.
The third pointer is the continuing growth in business formation in Scotland. Scottish Government figures last week showed the number of small businesses in Scotland at a record high. Far from predictions of business contraction, there were 365,600 private sector businesses operating in Scotland during 2017, up 3 per cent from 2016. As Andy Willox, Scottish policy convenor of the Federation of Small Businesses pointed out: “Smaller firms are more important to Scotland’s success than ever before. Smaller businesses are picking up the slack. From Stornoway to Selkirk, small firms are creating jobs, leading to the record lows in unemployment we’ve seen this year.”
Now look at signs of confidence in the North Sea oil sector. It has endured more than three years of pull-back and retrenchment in the wake of the oil price collapse, from a high of $115 a barrel in the summer of 2014 to just $27 in January last year. The effects were felt not only in the Aberdeen area but right across the onshore specialist engineering sector.
Earlier this year, the oil price was wallowing at $45 a barrel. But today the price of Brent crude oil futures has perked up to just over $64 – a gain of more than 40 per cent. Together with a nudge up in output, this has enabled the North Sea oil industry to consider prospects for revival.
The first half of the year saw nearly £4.6 billion of takeover action. The Oil & Gas UK economic report argues that significant assets changing hands and an increasing diversity of new ownership might be a shot in the arm for “badly needed investment” in the UK Continental Shelf. It says oil and gas market conditions remain tough, but there was evidence the sector was “reinventing itself” through efficiency gains, fiscal competitiveness and a strong supply chain.
A fifth reason not to despair is the outlook for Scotland’s housing market. While there are clear signs of a cooling across England and Wales and falls in the overheated areas of London, the latest survey from the Royal Institution of Chartered Surveyors shows that Scotland, Wales and the North East of England were the only areas to see any pick-up for agreed sales. However, it warns that Scotland’s Land and Buildings Transaction Tax (LBTT) is proving “prohibitively high” and it has called on the Scottish Government to review it.
And from upmarket estate agent Savills last week came a forecast that house prices in Scotland will outperform London and most other regions of the UK over the next five years. While average UK house prices are expected to grow by 14 per cent, and those for Greater London by 7 per cent, Scottish house prices are forecast to increase by 17 per cent by 2022.
Faisal Choudhry, Savills’ head of residential research in Scotland, says: “We are entering a new period with most Scottish cities experiencing greater than average price increases due to a lack of supply and strong local economies. Not only are they likely to outperform the wider Scotland market over the next five years, but the UK as a whole.”
Finally, keep an eye out for the forthcoming Bank of Scotland Purchasing Managers Index (PMI) survey due out tomorrow. The September survey revealed a moderate pace of growth, extending the current sequence of expansion to ten months. All eyes will be focused on whether the October survey points not only to a rise in the headline PMI but also in new orders and employment.
If this is indeed the case, predictions of the death of Scotland’s economy may prove, well, a tad exaggerated.