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Our economy is on the right track but hold cartwheels for now

Scotland's economic output, we have learned this week, is at a record level.

While there is no reason to doubt this finding of the official, quality-controlled data from the Scottish Government, it sure doesn't feel like we are at an all-time high.

The official figures, published on Wednesday, show that Scottish gross domestic product (GDP) surged by one per cent quarter-on-quarter in the opening three months of this year.

This surprisingly strong rise meant Scottish GDP in this period was 0.4 per cent greater than its level in the second quarter of 2008, its peak ahead of the Great Recession. This figure for the second quarter of 2008 was the previous record, having come at the end of an extremely long period of uninterrupted economic growth. So a GDP reading above this level is undoubtedly a record.

However, people reading some of the particularly bullish headlines about the economy in yesterday morning's papers could be forgiven for spluttering over their cereal.

There seemed to be at least a hint of a "you've never had it so good" tone around bits of the coverage, some of which also majored on news of a record Scottish employment level of 2.587 million in the March to May period on the International Labour Organisation measure.

Some coverage of the economic performance of the UK as a whole has, in recent months, also been somewhat over-exuberant.

UK GDP was, in the first quarter of 2014, still 0.6 per cent adrift of its pre-recession peak, a fact that the Scottish Government appeared at pains to highlight on Wednesday.

Assessing the situation, leading economist Jeremy Peat could hardly have put it better when he urged people not to "turn cartwheels" over the record level of GDP in Scotland.

Mr Peat, visiting professor at Strathclyde University's International Public Policy Institute, highlighted the crucial fact that we are well below where we would have been if there had not been a recession.

There have been six lost years for the Scottish and wider UK economies in terms of economic growth, given both are roughly where they were in early 2008 in terms of their GDP levels.

It is the six lost years, rather than the record GDP, which most people will be feeling the effects of right now.

For many, it will have been, more or less, six lost years in terms of income growth even in nominal terms. And, when contemplating the economic outlook, we should not under-estimate the impact of this major blow to household finances.

Other people will have paid an even higher price for the behaviour of those financial sector players who brought the financial crisis down upon us all, losing their jobs or suffering pay cuts.

And all the talk of record employment levels, whether in Scotland or the UK as a whole, will probably leave many people baffled.

These headline figures mask the fact that vast numbers are enduring the misery of under-employment.

Bank of England Governor Mark Carney noted in May that 1.4 million people in the UK were having to work in part-time jobs because they were unable to find full-time work.

That is hardly a healthy situation.

Scottish Cabinet Secretary for Training, Youth and Women's Employment Angela Constance, while declaring this week that Scotland continued to do better in terms of employment rates among young people than the rest of the UK, emphasised the youth unemployment rate remained too high.

Given how grim things have been for so long, we should not lose sight of the positives in the latest Scottish GDP figures. While there might have been six lost years, the fact that economic output is at long last back above its pre-recession peak, after a tortuous journey, is worthy of a sigh of relief.

There were also some positives in the latest quarterly business survey published yesterday by Scottish Chambers of Commerce.

This survey, conducted by Strathclyde University's Fraser of Allander Institute, shows Scotland's manufacturing, construction, tourism, and financial and business services sectors enjoyed growing demand in the last quarter, and increased employment.

Liz Cameron, chief executive of Scottish Chambers, noted most sectors were experiencing growth and declared the survey showed business was on the right track.

However, Scottish Chambers also highlighted continuing caution among some survey respondents about the prospects for sustained recovery, "with rising house prices in London and rising consumer credit still being the key drivers of economic growth".

Also flagging the dangers inherent in the continuing lack of balance in the economic recovery in Scotland and the UK as a whole, Mr Peat highlighted his desire to see good data for business investment and exports. He pointed out that this was something we had yet to see coming through strongly, at either the UK or the Scottish level.

And let us not forget that this still-unsatisfactory economic picture has a backdrop of record low UK interest rates. Economists believe the first rate rise could be implemented later this year or in early 2015, but it has not come yet and, somewhat alarmingly, there are worries about the impact of even a quarter-point increase.

So, if anyone is still harbouring any belief that we have never had it so good, they will surely be disabused of this notion if they consider that the UK economy, more than five years after base rates fell to a record low of 0.5 per cent in March 2009, is still not considered in good enough shape to withstand an increase in benchmark borrowing costs.

That thought should surely be enough to stop anyone inclined to do a cartwheel, hand flip, or any other gymnastic manoeuvre in their tracks.

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