Bill Jamieson: GDP shows Scotland falling behind

FOR an economy tipped to be on the brink of an unprecedented triple-dip recession, Scotland’s GDP numbers for the third quarter of last year triggered an unusually sanguine response.

We may still have big problems with the service sector and construction is mired in gloom, but the general verdict has been more positive than a Strathclyde closing-down sale retailer could reasonably have expected.

It’s quite a ritual, the unveiling of these Scottish GDP numbers. Wheeled out five months after the end of the quarter being reported and lapped by UK figures for the subsequent quarter, their lateness has long been a quixotic feature of Scottish economic life.

Despite this tardiness, or perhaps because of it, the figures are trundled out of the St Andrew’s House museum amid great excitement. White-coated professors with magnifying glasses lavish all the reverential scrutiny due an ancient Chinese vase, especially one appearing to pre-date the Ming dynasty. Ah, yes! The tell-tale signs of the Tang period, the fractured base evidence of a kiln downturn of particular severity; the indentations round the opening indicative of weakness in manufacturing, and the boisterous faux-jade colouration bears witness to a preference for economy over delicacy of style. Indeed, the word “Primark” clearly stamped on the base would seem to bear this out.

For the record, the “latest” figures show that Scottish GDP grew by 0.6 per cent during the third quarter of last year. The UK figure by comparison was 0.9 per cent. This would appear to suggest that Scotland’s economy was “weaker” than the UK as a whole. But an annual comparison would reveal that Scottish GDP grew at twice the rate of the UK in the 12 months to end September (0.4 per cent compared with 0.2 per cent). Strathclyde University’s Professor Brian Ashcroft says the noteworthy feature of the latest numbers is that Scotland is now in sight of a stronger recovery than generally realised.

Because of the London Olympic Games fillip, Scotland’s 0.6 per cent figure could be said to represent “genuine” or real growth, whereas the 0.9 per cent UK figure, he says, has an element of “flash in the pan”. Drilling further into the aggregate figures, he finds Scottish data shows manufacturing turned in a strong performance with growth of 3 per cent in the quarter and 0.6 per cent over the year. In contrast, UK manufacturing grew by only 0.7 per cent in the quarter and contracted by 1.5 per cent over the year. Similarly, construction also “performed better” here, in a manner of speaking: falling 0.4 per cent in the quarter and by just over 7 per cent over the year, while UK construction shrank by 2.5 per cent in the quarter and 11.2 per cent over the year – altogether more scary.

These, together with changes in statistical methodology resulting in data showing Scotland’s economy lagging the UK by less than previously thought, have enabled Scotland’s pre-eminent economist to conclude on a markedly jaunty note: “Hey – our recovery just got better!”

Professor John McLaren, of the Centre for Public Policy for Regions, views the data differently. Yes, Scotland suffered less of a recession than the UK in 2008-9 (down by 5.6 per cent compared with 6.3 per cent), but he points out that Scotland has been unable to match even the UK’s very weak rate of recovery (2.8 per cent against 4.4 per cent). He also notes the sharp difference in employment performance: UK employment grew by more than half a million in the year to the end of the third quarter of 2012, while Scottish employment marginally fell. This discrepancy in performance, he notes, “was largely due to the private sector not growing in Scotland whilst, for the rest of the UK, there was considerable growth”.

Why does this analysis matter? It is important that the (revised and improved) GDP numbers are an accurate reflection of the period covered and provide a reliable snapshot of the economy at the time. But my concern is not just that, in an economy increasingly driven by the internet and electronic communication, dynamics can change fast. Nor is it that we have an evident gap between the approval of funds for infrastructure spending and the physical manifestation of shovels hitting the ground – a point I have repeatedly made in this column and which must be particularly irksome to a First Minister anxious to be able to point to results showing that there is an evident and positive Scottish difference.

My chief concern is that we are examining these figures with very little by way of long-term planning or strategic vision in mind. With Scottish life now dominated by the independence referendum and set to remain so for the next 20 months, the notion of the past helping to inform and shape our longer-term future falls away. Economic data is but grapeshot to be exchanged in this constitutional war.

It is hard to discern where and how Scotland is putting this data to longer-term analytical use. Instead, we are in the grip of a short-termism that would make even the most hyperactive hedge fund manager blush.

One key point of the McLaren analysis I would underline is the marked difference in the rate of private sector job creation between Scotland and the UK as a whole. We know, of course, that Scotland has a large public sector, which accounts for a greater share of its GDP than the UK. This has often been cited as a blessing – a buffer zone or shock absorber protecting Scottish employment and welfare from the full force of a downturn.

Current experience, however, suggests the opposite. Our public sector has shown no growth compared with its level in the third quarter of 2007, while output in the UK public sector has grown by 7 per cent over the same period.

The glaring difference is Scotland’s poor record in private sector job creation. Yes, we have a smaller private sector base relative to the UK. This is particularly manifest in a significant underperformance in the service sector here, which grew by just 0.3 per cent in the third quarter. By contrast, the UK service sector grew by 1.2 per cent.

St Andrew’s House could usefully examine how private sector job creation has been so resilient across the UK as a whole while being so weak in Scotland. What are the disincentives to such employment growth here and are we doing as much as we can to promote enterprise, investment and entrepreneurialism in the longer term? This, surely, is the Big Issue these figures present – and the issue is all the bigger if, as many fear, the fourth quarter will show an overall GDP contraction.

Twitter: @Bill_Jamieson