Clap till your hands are sore. That miserly 0.2 per cent GDP growth number for the first quarter? No need to worry. In a verdict of breathtaking chutzpah, Derek Mackay, our Secretary for Finance, Economy and Fair Work, left no room for doubt.
“Scotland’s economy”, he declared, “is strong. Output per head is highest in the UK outside London and the Southeast. And “despite the impact of the “Beast from the East”, our economy continued to grow in the first quarter of 2018, making this the fifth consecutive quarter of growth.”
The figures did indeed show Scotland “doing better” than the UK with its paltry 0.1 per cent growth number. Here we must surely pause while Mackay, garlanded with flowers from a beaming First Minister, acknowledges a ten-minute standing ovation in the Hall of the People.
All that hand-wringing from the Fraser of Allander Institute and sundry independent commentators vanquished at last. Our problems are surely over.
And so it seemed until, a day after this proclamation, a close family friend emailed me with a chart from that day’s Financial Times, showing Scotland’s economic performance diverging sharply downwards from that of the UK.
The lines clearly showed Scotland’s “recovery” had stalled in the past three years (not that the UK’s performance was anything to applaud). The email went on to pose one of those questions you wish had never been asked: why is Scotland’s economy performing so poorly?
The question became ever more acute when, two days later, quarterly data for the UK was revised up to show 0.2 per cent growth – thus blowing away the fig leaf claim that Scotland was “doing better”.
Now some caveats are in order. Scotland’s GDP numbers may also be revised up in due course. There is growing doubt across the economist profession as to the accuracy and utility of conventional GDP measurement, as I set out here a few weeks ago (poor at capturing online/digital activity, for example, and small high tech business start-up).
And Mackay is having to contend with deep structural problems and legacy issues that cannot be addressed by waving a government wand.
That said, the picture is not quite as he has sought to present it. I am grateful to the economist, Professor John McLaren, who provides a well-informed appraisal of Scottish economic performance and who has highlighted the following figures.
Comparing 2018 first quarter performance with the same period last year, Scotland is showing growth of just 0.8 per cent, compared with 1.3 per cent growth for the UK overall. On a longer-term comparison showing performance between the first three months of 2015 and the 2018 first quarter, Scotland’s economy has grown by 1.6 per cent, while the UK has expanded by 4.9 per cent.
In terms of GDP per head, a fairer measure, Scotland has gained 0.4 per cent over this longer period compared with 3.1 per cent over the UK as a whole.
By far the worst performance has been registered by construction. It is down 9.2 per cent on an annual comparison against a UK decline of 2.7 per cent. And the shortfall is far more marked over the three years since the 2015 first quarter. Over this period Scottish construction has declined by 7.3 per cent compared with a 7.5 per cent gain for the UK overall.
Other laggards over this longer period include manufacturing (down 4.5 per cent against a UK gain of 4.6 per cent), transport and communications (up 2.4 per cent in Scotland while the UK saw an 11.6 per cent gain), and business – a 5.6 per cent rise in Scotland eclipsed by a 13.5 per cent gain across the UK.
Much can be made of the poor weather in the first quarter – the Beast from the East which brought work on many building sites to a standstill. Construction in Scotland fell by 3.5 per cent. This is the ninth consecutive quarter that it has declined (equivalent to a 12.5 per cent decline from its peak).
The first quarter downturn here was cushioned by strong performances in manufacturing (up 1.8 per cent) and transport and communications (up 1.6 per cent).
An improving trend, then? But as Professor McLaren notes, the Office for National Statistics (ONS) data for cash terms Scottish construction output showed a much bigger fall in the first quarter of 11 per cent (compared with a 3 per cent fall for the UK), with output back to the level seen three years ago. This suggests, he adds, that there may be yet more to come in terms of falling Scottish construction output. The ONS data highlights that new infrastructure work has fallen to almost half of the peak level seen in the second half of 2015; that new public work is at its lowest level in almost four years, and new private commercial work has fallen to its lowest level in almost five years.
Meanwhile “legacy issues” still pertain, in particular the retreat from the abnormally high level of construction activity (including the new Queensferry Crossing) of three to four years ago. The figures may also show the effects of the downturn on onshore oil specialist engineering and related oil sector work following the slump in the oil price four years ago, with hundreds of onshore firms suffering a fall in order books and activity.
Might Brexit uncertainty be blamed? But then the whole of the UK is affected, not just Scotland, and this does not explain the variation in performance between Scotland and the rest of the UK.
And deeper, structural issues may be at work, such as demographics and low growth in working age population. Our population has been ageing with the result that a proportionately smaller working age population faces increasing demands in funding healthcare and welfare services for a rising population of over-65s.
As the Scottish Fiscal Commission recently noted: “The size of the population aged 16 to 64, which makes up most of the working age population, is very important for the economy and public finances. These individuals are more likely to be working and will be generating the highest tax receipts, for example, in income tax.”
And an overall, definitive answer? The Scottish government’s Economy Committee has (belatedly) launched an inquiry. Don’t clap your hands just yet.