Scotland's economy lags behind rest of UK

Group Business Editor

Thursday 19 July 2012

SCOTLAND's economic performance in the year to March is much poorer than that UK-wide, even though the renewed recession is shallower north of the Border, latest official data show.

POSITIVE MOVE: Mechanical engineering output grew 2.5% in the first quarter while engineering output rose by 0.2% Picture: Marc Turner

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And Scotland is further adrift of its peak in economic output before the "Great Recession" of 2008/09 than the UK as a whole.

Comparing the year to March 31 with the prior 12 months, Scottish Government data published yesterday show gross domestic product was up just 0.2% in Scotland but by 0.6% UK-wide on the "gross value added" measure.

Scottish economic output in the first quarter was nearly 4% adrift of its pre-2008/09 recession peak. The UK as a whole was about 3.6% adrift of its peak output ahead of the Great Recession.Scotland re-entered recession in the opening three months of 2012 with a second straight quarterly decline in output of 0.1%. However, this renewed recession is not as deep as that UK-wide. UK GDP, on the gross value added measure, fell 0.3% in the final three months of last year and by 0.4% in the first quarter of 2012.However, economists were alarmed by a 6.9% quarter-on-quarter plunge in Scottish construction output in the first three months of 2012, and called for action to boost infrastructure projects. UK-wide construction output fell 4.9% in the first quarter.On a more positive note, the manufacturing sector performed much better in Scotland than in other parts of the UK in the first quarter. Manufacturing output rose 0.9% quarter-on-quarter in Scotland but fell 0.3% UK-wide.Scottish mechanical engineering output grew 2.5% in the first quarter. Overall Scottish engineering output rose by 0.2%, even though the electrical and instrument engineering category, which takes in the key electronics industry, declined by 1.3%.The refined petroleum, chemical, and pharmaceutical products manufacturing sub-sector enjoyed a 5.5% leap in output in the first quarter. But food, beverages and tobacco saw a 1.4% dip in output.Stripping out oil and gas extraction, to give what some economists consider a better underlying measure, Scotland's underperformance of the UK as a whole since the end of the 2008/09 recession is more stark. On this basis, Scottish output in the first quarter was 3.8% adrift of its pre-2008/09 recession high. The UK as a whole is only 2.9% behind its corresponding peak.Comparing the year to March 31 with the prior 12 months, GDP on this basis was up by just 0.3% in Scotland but by 0.9% UK-wide.Output of the dominant services sector grew by 0.2% both in Scotland and UK-wide in the first quarter. Business services and finance performed more strongly in Scotland, with output in this sub-sector rising by 0.4% in Scotland but falling by 0.3% UK-wide.Professor Brian Ashcroft, emeritus professor of economics at Strathclyde University and economics editor of the Fraser of Allander Institute commentary, said it was a "cause for concern" that Scottish GDP had been broadly 4% below its pre-2008/09 recession peak since the second quarter of 2010. Noting Scottish construction output had fallen back close to its trough of late 2009, Mr Ashcroft added: "That is exceptionally worrying because dips in construction output are harbingers of recession."Noting Chancellor George Osborne's new £40 billion scheme to underwrite UK infrastructure projects did not involve any new public money, and pointing out there was no guarantee the private sector would participate, he added: "We are languishing, without policies to deal with it."While welcoming Scotland's manufacturing performance, Mr Ashcroft said of the overall GDP data: "There is not much silver in the cloud."Jeremy Peat, director of The David Hume Institute economic think-tank, described the fall in construction output as "dire".He warned Scotland would be "seriously disadvantaged" over the medium to long term by failure to "get infrastructure moving", and did not believe Mr Osborne's proposals would have much effect.Mr Peat said: "Scotland should be looking seriously at how to enhance infrastructure spending, which involves getting the private sector re-engaged."Mr Ashcroft noted that the fall in UK output during the Great Recession had been revised down to 6.3%, which was now much closer to the drop of 5.8% recorded in Scotland.

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Scotland's economy lags behind rest of UK

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