scotland’s economy: 2017 · • over the last 10 years, output per head in scotland –a key...

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.


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!


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


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


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


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



Explanation 3: Economic confidence in Scot…….


-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


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


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.


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



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


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?


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



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


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


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


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


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.

scotland’s economy: 2017 · • over the last 10 years, output per head in scotland –a key...

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