scotland’s economy: 2017 · • over the last 10 years, output per head in scotland –a key...
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Scotland’s Economy: 2017
Graeme Roy, Fraser of Allander Institute
May 2017
www.strath.ac.uk/fraser
Outline
• Our take on how the Scottish economy is doing.
• Recent developments & what we think the outlook is like for Scotland.
• Highlight some of the key longer term trends……
…….many of which will be familiar to those with an interest in the Scottish economy
over the years but which have fallen off the agenda in recent times.
www.strath.ac.uk/fraser
Growth in 2016?
• Scottish economy grew 0.0% in 2016.
• Alternative measure based upon 4Q-on-4Q: growth of +0.4%…
o 4Q-on-4Q is the sum of the entire 4 quarters this year compared to the sum of last
year’s 4 quarters. If you have growth one year but none the next, the 4Q-on-4Q figure
will always be positive!! And vice versa.
Think of it like walking up a hill and reaching a plateau. You’re no longer going up!
www.strath.ac.uk/fraser
A resilient labour market?
69
71
73
75
3
4
5
6
7
8
9
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
Em
plo
yem
nt
Rate
(16
-64
)
Unem
plo
yem
nt
Rate
(16+
)
Unemployment Rate (LHS)
Employment Rate (RHS)
Source: ONS
www.strath.ac.uk/fraser
But beneath the headlines some challenges…..
-60,000
-40,000
-20,000
-
20,000
40,000
60,000
80,000
Uemployment (16+) Employment (16+) Economically Inactive (16-64)
Ch
an
ge
ove
r ye
ar
to D
ec-F
eb
20
17
Source: ONS
www.strath.ac.uk/fraser
Explanation 1: Challenges in oil and gas
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
% G
DP
(in
clu
din
g ge
ogra
phic
al
sha
re o
f N
S)
Extra-regio as share ofScottish GDP
Source: Scottish Government
www.strath.ac.uk/fraser
Explanation 2: Wider challenges???
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
GDP Production Construction Services GDP per head
Annu
al %
Gro
wth
(Q
4 2
016 v
s. Q
4 2
015)
Scotland UK
Source: Scottish Government
www.strath.ac.uk/fraser
Explanation 3: Economic confidence in Scot…….
Source: Scottish Government
-10
-5
0
5
10
15
20
25
30
35
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2013 2014 2015 2016
Ba
lan
ce
of
exp
ecta
tio
ns (
>0
: +
ve
, <
0:
-ve
)Economy Expectations
Household FinancesExpecations
www.strath.ac.uk/fraser
Explanation 3: Consumer confidence in Scot…….
-25
-20
-15
-10
-5
0
5
10
15
20
25
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
2015 2016 2017
Co
nfid
en
ce
In
de
x (
>0
= +
ve
; <
0 =
-ve
) Scotland = Red
Other UK nations &
regions = Grey
PMI for Scotland
been lowest amongst
UK nations/regions
since Sep 16
Source: GfK
www.strath.ac.uk/fraser
Explanation 4: Brexit
• Back in July, we argued that Brexit uncertainty would act as headwind on Scottish
economy.
• Predicted relatively fragile growth over 2016, 2017 and 2018.
• But undoubtedly true that UK economy has held up much better than most anticipated…..
but challenges beginning to emerge…….strength of consumer scaled back
• Hard to fully explain Scotland’s weak performance is just driven by Brexit uncertainty.
www.strath.ac.uk/fraser
Scotland vs. the UK…….
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2014 2015 2016
% Q
on Q
Source: Scottish Government
www.strath.ac.uk/fraser
Signs of a more +ve outlook – RBS Business Monitor
-20
-10
0
10
20
30
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2014 2015 2016 2017
Ne
t B
ala
nce
Vol of repeat business
Vol of new business
Source: Royal Bank of
Scotland/FAI
www.strath.ac.uk/fraser
Long-term trends
• Talk back in at start of financial crisis of a possible ‘lost decade’.
• Over the last 10 years, output per head in Scotland – a key measure of economic progress
– has grown by just 1.2% (from Q4 2006 to Q4 2016). UK equivalent is 4.2%.
• To put that in context, between Q4 1999 and Q4 2006, output per head in Scotland grew
17%
• It’s nearly 10 years since ambitious targets were set for Scotland’s economy. So…..how are
we doing compared to these key Purpose targets?
www.strath.ac.uk/fraser
Matching UK & EU economic performance
-3%
-2%
-1%
0%
1%
2%
3%
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Pe
rce
nta
ge
Ga
p
In only 12 (of 40)
quarters since 2007
has Scotland’s
annual growth been
the same/better
than UK.
Roughly 50:50
when compared to
small EU….but
current small EU
growth 2.4% vs.
0.4% for Scotland
Source: Scottish Government
www.strath.ac.uk/fraser
Productivity: To rank in top quartile in OECD by 2017
Scotland has
caught up with UK.
Scotland slipped
into 3rd quartile but
back in 2nd in 2015.
Likely to fall in 2016
given weak data.
Productivity still
20% below top
quartile
0
2
4
6
8
10
12
14
16
18
20
2007 2008 2009 2010 2011 2012 2013 2014 2015
Sco
tla
nd
's O
EC
D p
rod
uctivity r
an
kin
g
Source: Scottish Government & OECD
www.strath.ac.uk/fraser
Participation: To maintain position as top performing country in UK
Labour market, Dec-Feb 2017
Employment (16-64)
Unemployment (16+)
Inactivity (16-64)
Scotland 73.4 4.5 23.0
England 75.0 4.7 21.2
Wales 73.0 4.9 23.2
N. Ire 68.8 5.2 27.3
UK 74.6 4.7 21.6 Source: ONS
In 2007, Scotland
had the highest
employment rate of
UK nations.
England now 1.6
%-points ahead.
Scotland slightly
better on
unemployment but
weaker on inactivity
www.strath.ac.uk/fraser
Participation: To close gap with top 5 OECD
Latest data used to
monitor target
covers up to 2015.
Gap = identical.
Cohesion target:
Still >15%-point
difference between
top and worst
performing local
authorities
New ZealandNew Zealand
66
68
70
72
74
76
78
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Em
plo
ym
en
t R
ate
(%
)
Rate in 5th highest OECD Scottish rate
Gap of 2.4 percentage points
Gap of 2.4 percentage points
Source: Scottish Government & OECD
www.strath.ac.uk/fraser
Match average EU15 population growth over period from 2007 to 2017
-0.1%
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Pe
rce
nta
ge
ch
an
ge
on
pre
vio
us y
ea
r
EU 15 annual populationgrowth rate
Scottish annual populationgrowth rate
One area where
evidence of
Scotland doing
better.
Driven in part by
ongoing migration
into Scotland –
potential challenges
if Brexit imposes
constraints.
Source: NRS & Eurostat
www.strath.ac.uk/fraser
Conclusions
• Scotland’s economy held up remarkably well during the financial crisis but recovery has
remained fragile. Challenges in North Sea have undoubtedly acted as a headwind.
• That being said, policymakers will be concerned about the outlook for the Scottish economy
particularly with the new tax powers meaning that future Scottish budgets will depend on
revenues generated in Scotland.
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