Bill Jamieson: Slowing growth rate is not good news – regardless of what Keith Brown says

Economy Secretary Keith Brown hailed GDP growth of just 0.1 per cent in the second three months of the year. Picture: John Devlin
Economy Secretary Keith Brown hailed GDP growth of just 0.1 per cent in the second three months of the year. Picture: John Devlin
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What exactly constitutes “good news”? If you ever wanted to start a bun fight between economists, this is the question to ask. And once you ask it, stand well back.

Take the latest quarterly figures posted last week showing Scotland’s Gross Domestic Product grew by just 0.1 per cent in the second three months of the year. That, by any standards, is a lacklustre performance, and below the (still poor) UK growth rate of 0.3 per cent over that period.

After what seemed a promising start in the first quarter, when Scotland’s economy was deemed to have grown by 0.8 per cent, the economy has slowed again – and is barely showing a pulse.

But the figures, declared Economy Secretary Keith Brown last week, “are good news, showing the Scottish economy continuing to grow over the second quarter of this year”.

Good news? How can a slowing growth rate, and one well below the equivalent UK figure, possibly be hailed as “good news”?

Here is the scathing verdict of independent economist John McLaren: “The second quarter has proved disappointing again, after the positive signs in Q1. The bounce back in manufacturing has ended and, as expected, construction continues to fall.

“Over the last ten quarters, notable growth in the Scottish economy has been restricted to two quarters (2015 Q4 and 2017 Q1) with the remainder exhibiting essentially no growth. This remains a worrying trend. Furthermore, on a like- for-like basis with the UK, Scotland’s performance has been even worse over the past two-and-a-half years than is shown in the official publication.

“Finally, for the Economy Secretary of the Scottish Government to describe the 0.1 per cent quarterly increase as ‘today’s figures are good news’ suggests that he considers such a poor performance to be acceptable. Surely that cannot be the case.”

But, insists the Economy Secretary, good news it surely is. Although the figure, he admitted, was “more modest growth than we would ideally like to see, it is particularly pleasing to see growth over the first half of the year in industries linked to the oil and gas supply chain, which provides more evidence that confidence is gradually returning to the sector.

“Additionally we are seeing strength in Scotland’s services sector – particularly good news given that it is by far the largest part of the economy in terms of turnover, value added and employment. This, in addition to our record low unemployment and record high employment rates, is evidence that the fundamentals of our economy remain strong.

“While construction output continues to adjust as a number of major infrastructure projects have reached completion, it remains significantly higher than in 2014.”

Here context is everything. And so, too, is expectation. Many might consider, amid the continuing torrent of warnings from Scottish ministers about the consequences of Brexit, that growth of any sort is a cause for celebration. As Brown added last week: “The single biggest threat to our economy as a whole remains the lack of clarity from the UK government over Brexit.”

Remember, too, that in the immediate aftermath of the Brexit vote, a UK-wide recession was widely predicted.

And the aftermath of the oil price slump and the adverse knock-on effects across the North Sea sector and the hundreds of onshore engineering and supply companies across Scotland should have led us to expect a subdued performance at best.

So in the circumstances, 0.1 per cent growth might indeed be considered “good news” – or at least from the point of view of government ministers. But John McLaren is under no obligation to make the best of things. “The performance in the first half of 2017,” he writes, “does little to make up for the complete lack of growth seen in the Scottish economy through 2016, compared with merely ‘poor’ growth seen for the UK.”

The “active” economy (essentially manufacturing and non-financial private sector services) measure of output “remains a worry. On this measure the discrepancy in growth with the UK in 2016 was even larger. However, this is also the area that has improved the most in 2017.

“Comparing GDP output data on a like for like basis with the UK (i.e. using purely GDP output data for the UK, as opposed to the GDP average) then Scotland’s performance has been even worse over the past two-and-a-half years than is shown in the official publication. While Scotland has grown by 1.2 per cent, the UK has grown by 4.5 per cent.”

For those out there in the “real economy”, this welter of GDP statistics might seem of little matter. Unemployment – for so long the biggest concern of economic policy – has fallen to multi-year lows, and continues to do so. And numbers in work are close to all-time highs. Labour market figures are surely a better guide to our economic well-being. And the better news from the service sector is now buttressed by UK Purchasing Managers survey data showing activity picking up, albeit very modestly in September, from an 11-month low in August.

What, if any, are the implications for policy? Here the good news comes with loud warnings on the administration’s tax rise ambitions. Andy Willox, Scottish policy convenor for the Federation of Small Businesses, says: “No-one with a stake in the success of Scotland’s economy – and that’s all of us – should be pleased with these lacklustre figures. Business confidence in Scotland, and across the UK, fell sharply in the third quarter, with firms pointing to spiralling overheads and political uncertainty associated with Brexit. Therefore it is perhaps unsurprising we’re also seeing the wider economy performing poorly. To charge growth, ministers in Edinburgh and London must ensure all of their plans are geared towards boosting local economies. They must deliver.”

And Ewan MacDonald-Russell, head of policy at the Scottish Retail Consortium, said: “With customer confidence brittle, Ministers should avoid any steps which will hit household incomes, and consequently impact on consumer spending. That spending is still the lifeblood of Scotland’s economy and ensuring it continues to pump around the economy is a priority. The government should be very cautious about measures which could tip hard-pressed retailers into greater difficulties.”

Good news, it seems, comes with all manner of warnings on how the administration should proceed from here.