Scottish recession is steepest in UK … and UK recession is worst in world

SCOTLAND'S economy is now falling faster than the rest of the UK, according to statistics published yesterday.

The gloomy news from the latest gross domestic product figures came as the world's leading economic organisation, the International Monetary Fund, warned the UK would suffer the worst slump of all industrial nations, in the deepest recession "since the Second World War".

Scotland did perform better than the rest of the country last year, resisting the falls in employment and negative growth that affected England, Wales and Northern Ireland.

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But the latest GDP figures showed a fall of 0.8 per cent in Scotland in the third quarter of last year – compared to 0.6 per cent in the UK as a whole.

The figures do not actually mean that Scotland has yet moved into recession, but John Swinney, the finance secretary, admitted this was now likely.

Scotland would be in recession if it had two consecutive quarters of negative growth, and Scotland's GDP in the second quarter of last year rose marginally, by just 0.1 per cent.

Figures last Friday confirmed that the whole of the UK moved into recession in the fourth quarter, when GDP shrank by 1.5 per cent after the previous quarter's 0.6 per cent decline.

Prime Minister Gordon Brown yesterday told the Commons that the UK was now in "deep recession".

The IMF warned that all major economies are expected to experience steep falls in output in 2009, but the drop for Britain would be substantially greater than the average.

The organisation said it had revised down its expectations for the contraction in the UK economy, from 1.3 per cent to 2.8 per cent. Advanced nations are expected to suffer an average 2 per cent drop in output.

The IMF said global growth is expected to fall to 0.5 per cent this year as the "scale and scope of the current financial crisis have taken the global economy into uncharted waters".

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"The main risk is that, unless stronger financial strains and uncertainties are forcefully addressed, the pernicious feedback loop between real activity and financial markets will intensify, leading to even more toxic effects on global growth," the report said.

Mr Swinney said: "These (GDP] figures reflect the global economic difficulties all countries are facing up to.

"There are some positive economic indicators for Scotland – our employment rate exceeds that of the UK, we have lower unemployment and higher economic activity than the UK average, while we also have areas of real strength like renewable energy. But it is clear that the Scottish economy is now likely to follow the UK economy into recession."

Yesterday's quarterly figures show Scotland's GDP rose by 1.4 per cent annually, despite the 0.8 per cent quarterly fall. In the third quarter, the service sector fell 1.1 per cent, the production sector grew 0.8 per cent, and construction fell 1 per cent.

CBI Scotland director David Lonsdale said of the overall figures: "These figures show that the long and sustained period of admittedly modest levels of economic growth enjoyed in Scotland over recent years has come to a shuddering halt.

"The intensity and speed of falling demand, combined with the credit crunch, means this downturn is likely to get worse before it gets better."

Labour economy spokesman John Park accused the SNP of failing to respond to the challenges. "The crisis is now having a direct impact on workplaces, families and communities," he said.

Tory shadow Scottish secretary David Mundell said Labour had "repeatedly claimed the recession is less bad in Scotland than the rest of the UK. Now it seems less and less likely to be true."

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John McLaren, of research body the Centre for Public Policy for Regions, said: "The fact that public sector services have not contributed to growth for over two years now, and that the fallout from financial services has yet to be reflected in the data, suggests that there are hard times ahead."

Analysis: A bad start, then it got worse

Professor David Bell

SCOTLAND was growing more slowly than the UK before the recession started. Yesterday's GDP figures for the third quarter of last year show a continuation of this relative weakness.

If Scotland's economic performance in the last quarter of 2008 continued to be worse than the UK as a whole, the value of goods and services produced in Scotland will have fallen by more than 2 per cent during the year. This will make 2008 one of the worst years in Scotland's recent economic history.

The food and drink sectors are performing badly compared with the rest of the UK, as is agriculture, forestry and fishing.

Less surprisingly, the financial services sector has also slipped into decline, starting in early 2007.

For the final quarter of 2008, the statisticians will have the problem of dealing with the full-year losses at RBS, estimated at 7.5 billion – or 7.5 per cent of Scottish GDP. How much of this is allocated to Scotland will substantially influence how bad the estimates for GDP in the 2008 Quarter 4 turn out.

Contrary to perceptions, the public sector is not offsetting the effects of the downturn in other sectors. Public sector output in Scotland has been largely flat since 2007 Quarter 3, whereas it has grown strongly in the rest of the UK.

The new data also show that Scotland is not lagging the rest of the UK as it goes into recession: both moved into negative growth in the same quarter. Scotland's relative performance has been worse than the UK for some time, and it is quite possible that figures for 2008 Quarter 4 will show output declining more steeply in Scotland.

It's mince – and old mince at that

Bill Jamieson

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INSTEAD of being more sheltered from recession compared with the UK, Scotland is faring worse than the UK as a whole. And the UK, according to the IMF, is set to contract 2.8 per cent this year – worse than any other advanced economy.

It looks bad for Scotland. But there is another problem. The latest estimates are riddled with adjustments, revisions and anomalies. To describe them as mince would be doing an injustice to mince.

According to the data, financial services was one of the few sectors in Scotland to show growth (up 0.5 per cent on the previous quarter). The figures also show a substantial bounce back in the final quarter of 2007 and the first quarter of last year, just as the credit crisis was building. Oh, really?

Equally bizarre are the numbers for hotels and catering. According to the stats, this sector has shown no overall growth for a decade. The figures also show public services did not contribute to GDP growth in 2007 and look unlikely to do so in 2008. Yet we have poured vast sums into the public sector.

After six pages of statistical revisions, it is hard to avoid the conclusion that you would get more reliable numbers out of Bernie Madoff's tax return.

Why does this matter? We are heading for a referendum on independence in 2010 and need robust, reliable figures – particularly on financial services and tourism. The case grows for an independent commission to sort out Scotland's confusing economic data and to have more timely figures. We can surely do better than this. It's not just mince, but mince three months behind everyone else's mince.