THE director of a leading Scottish think-tank has warned the risks to the Scottish economy remain “exceptionally high” amid Brexit uncertainty, as he declared the best growth for two years had likely been driven by stockpiling.
Graeme Roy, director of the University of Strathclyde’s Fraser of Allander Institute, sounded the note of caution yesterday after Scottish Government figures showed gross domestic product grew by 0.5 per cent quarter-on-quarter in the opening three months of this year. This matched the UK-wide growth rate and was the ninth consecutive quarter of expansion in Scotland.
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Manufacturing output in Scotland surged by 2.6% during the first quarter. The spirits industry turned in a strong performance, as did pharmaceuticals.
The Scottish Government said: “Some surveys have linked this increase in manufacturing to stockpiling for Brexit.
“If some of the growth observed this quarter was a result of stockpiling, this would be expected to result in a corresponding slowdown in growth in future quarters as companies run down the inventories accumulated.”
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A raft of surveys have signalled manufacturers across the UK stockpiled finished products and raw materials ahead of the previously planned Brexit date of March 29.
Mr Roy said: “Growth of 0.5% in the first three months of 2019 represents the fastest Scottish growth in two years – matching UK growth over the same period.
“But it’s important to understand that it is likely that the driver for much of this increase in growth was the activities of businesses – particularly manufacturing firms – as they prepared for EU exit in March. This means two things; firstly growth in the next set of data covering the second quarter of 2019 is likely to be somewhat suppressed as businesses run down their stockpiles, and secondly, these figures do nothing to erase the underlying challenges that remain in the Scottish economy.”
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He added: “Today’s figures aside, the risks to Scotland’s economy remain exceptionally high.”
Mr Roy told The Herald he was thinking primarily of Brexit uncertainty in terms of his warning about “exceptionally high” risk.
He added that the Scottish services sector data appeared “particularly weak” in the first quarter as well.
Scottish services output grew by just 0.1% in the first quarter. Accommodation and food services saw a 1.1% quarter-on-quarter fall in output, with professional, scientific and technical services also contracting by 1.1%.
In contrast, Scottish construction output jumped by 2% in the first quarter.
Economist John McLaren, who runs the Scottish Trends website, said of first-quarter Scottish growth: “This is a relatively high, post-2009, quarterly growth rate and was largely due to unusually high growth in two manufacturing sectors – spirits and pharmaceuticals.”
However, he took issue with Scottish Economy Secretary Derek Mackay’s assertion that the latest GDP data showed the economy north of the Border “continues to go from strength to strength”.
Mr McLaren said: “The idea, as espoused by the Scottish Economy Secretary, that ‘Scotland’s economy continues to go from strength to strength’ is absurd, as the recent £1 billion blow to the Scottish Budget through relatively slower Scottish growth demonstrates.”
Comparing the first quarter with the same period of last year, Scottish GDP was up 1.4%. This is adrift of corresponding year-on-year growth in the UK as a whole of 1.8% in the first quarter.
Tracy Black, director of the Confederation of British Industry in Scotland, described the run of growth north of the Border as “positive”.
However, she said: “Scratch beneath the surface and Brexit uncertainty continues to have a real impact. Just like the UK economy overall, it’s likely that stockpiling was a significant contributor to growth ahead of the recent Brexit deadline, something that will fade as we move through the year.”
Ms Black added: “While improvements in the construction industry are welcome, the Scottish economy seems to have relied on two specific manufacturing sectors, the food and drink and pharmaceutical and related industries, to drive growth.
“Worryingly services, which make up more than three-quarters of Scottish GDP, saw quarterly growth nearly flatline.”
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