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Growth boost for Scottish economy

THE Scottish economy grew by 0.6% in the third quarter of last year, as manufacturing output surged, but it was unable to emulate expansion of 0.9% in the UK as a whole during this period.

hope: Construction output fell by 0.4% in Scotland, but tumbled by 2.5% in the UK as a whole. Picture: Colin Mearns
hope: Construction output fell by 0.4% in Scotland, but tumbled by 2.5% in the UK as a whole. Picture: Colin Mearns

Economists highlighted the fact that Scotland would have received much less of a boost from the London 2012 Olympics than other parts of the UK.

However, they cited potential for Scotland to have outperformed the UK as a whole in the fourth quarter of last year, given the relative lack of an Olympics boost north of the Border in the three months to September.

The 0.6% quarter-on-quarter increase in gross domestic product (GDP) north of the Border in the three months to September was revealed in data published yesterday by the Scottish Government. This jump reflects partly the fact that output in the three months to June was depressed by the extra public holiday for the Queen's Diamond Jubilee.

The data showed a 3% quarter-on-quarter surge in manufacturing output in Scotland, which was way ahead of a corresponding increase of 0.7% for this sector in the UK as a whole. However, a 0.3% rise in output of the dominant services sector in Scotland in the third quarter was adrift of a corresponding 1.2% UK increase.

The Scottish Government data showed construction output fell by 0.4% in Scotland in the third quarter, a far less steep drop than the 2.5% tumble in the UK as a whole.

Comparing the third quarter of last year with the same period of 2011, GDP was up 0.4% in Scotland but only 0.1% UK-wide. Data published last month by the Office for National Statistics showed UK GDP declined by 0.3% quarter-on-quarter in the final three months of last year. This drop means that the UK will fall into triple-dip recession if it suffers further contraction in the first quarter of this year.

Fourth-quarter GDP figures for Scotland are due to be published on April 17.

Brian Ashcroft, emeritus professor of economics at Strathclyde University, believes Scotland may not have performed as badly as the UK as a whole in the fourth quarter given that the economy north of the Border did not benefit to nearly the same extent from the Olympics in the three months to September.

He said: "I suspect Scotland will be flat or maybe growing marginally, maybe by 0.1%, in the fourth quarter."

Declaring that the economy continued to labour under fiscal consolidation, Mr Ashcroft emphasised: "We are not seeing a strong recovery yet."

However, he said of the third-quarter growth in Scotland: "It is nice to see some better news."

Jeremy Peat, director of the Edinburgh-based David Hume Institute think-tank, also highlighted the Olympics as a key reason why growth had been stronger in the UK as a whole than in Scotland in the third quarter.

And, touching on the one-off nature of this boost to UK activity in the third quarter, he added: "It will be splendid if Scotland bucked the (downward UK) trend in Q4."

He said of yesterday's Scottish GDP figures: "The manufacturing data are very encouraging. The services data are decently encouraging."

However, he cautioned: "I am wary of anticipating too good an outcome in Q4 (in Scotland) given the weakness at a UK level.

"We know there are a number of very good manufacturing companies that are bucking the trend and exporting well, (but) let's not count the chickens yet."

Mr Ashcroft, economics editor of the respected Fraser of Allander Institute commentary, highlighted significant revisions to past Scottish GDP figures resulting from significant changes in methodology introduced in the latest release.

In particular, he noted that the double-dip recession in Scotland was now shown to have lasted for only two quarters, with respective declines in GDP north of the Border of 0.5% and 0.1% in the first and second quarters of last year. In the UK as a whole, GDP declined in each of these two quarters and in the final three months of 2011.

Mr Ashcroft said that, after these revisions, Scotland now stood with the UK as a whole in being just under 3% adrift of its peak in output before the "Great Recession" of 2008/09. Previously, the GDP data had shown Scotland significantly further adrift of its pre-Great Recession peak than the UK as a whole.

Output of Scotland's food, beverages and tobacco manufacturing sub-sector surged by 10.2% quarter-on-quarter in the three months to September, according to the Scottish Government data. This may reflect the continuing buoyancy of the Scotch whisky industry, which has thrived in spite of the difficult economic times of recent years.

The computer, electrical and optical products manufacturing sub-sector was also buoyant, enjoying a 3.4% quarter-on-quarter jump in output in the three months to September.

However, the textiles, clothing and leather products manufacturing sub-sector suffered a 7.6% decline in output.

There was a 3.4% quarter-on-quarter jump in output of Scotland's professional, scientific, administrative and support services sub-sector in the three months to September. This contrasted with a 1.3% decline for financial and insurance activities.

The Scottish Government data showed a 1.5% rise in output of the retail and wholesale services sub-sector in the third quarter.

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