Energy sector’s boost is too small to spark up recovery

THE latest quarterly growth data from the Scottish Government reveal stagnant growth and a weaker recovery here than in the UK. GDP grew by 0.1 per cent in the second quarter of 2011, the same as in the UK.

There was a boost to Scottish growth from electricity and gas supply, with growth of just over 15 per cent compared with a fall of -1.7 per cent in the UK. But the sector only contributes about 2 per cent to overall GVA.

Both the services sector (73 per cent of the economy) and construction (8 per cent) were weaker in Scotland than their UK counterparts in the quarter. Services grew by 0.1 per cent in Scotland but by 0.2 per cent in the UK, while construction contracted by 2.3 per cent in Scotland but grew by 1.1 per cent in the UK. However, over the year, construction performance was stronger in Scotland, with growth of 11.8 per cent compared with 7.3 per cent in the UK. It may comfort the Scottish Government that its decision to front-load capital investment last year may have had a positive outcome. The downturn in the sector over the last three quarters must, though, be a cause for concern.

The UK government hopes rapid growth of exports and investment will underpin the recovery. Exports are mainly of manufactured goods. So, while manufacturing directly contributes only about 12 per cent to GDP in Scotland and 10 per cent in the UK as a whole, it is expected to play a crucial role in the recovery. Stronger manufacturing export growth will contribute to GDP growth directly, but also indirectly through an increased demand for services and from the spending of higher incomes.

In the latest quarter, manufacturing grew by 0.2 per cent in both Scotland and the UK, a bit better than the economy overall but still relatively weak growth.

When the data are looked at over the period since the start of the recession, the challenge facing the Scottish economy is even more clear. Scottish GDP is still more than 4 per cent below where it was just before the recession started, and the UK economy nearly 5 per cent below. However, the depth of the recession was greater and sharper in the UK, with GDP falling by just over 7 per cent, whereas in Scotland the drop was a little under 6 per cent. But the UK has come back more strongly, even though the recovery is weak overall. There is little comfort for anyone in these latest figures.

l Brian Ashcroft is emeritus professor of economics at Strathclyde University.