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Economy grows at 0.8%

Scotland avoids recession with surprise upturn

Offices and factories continue to increase output

Scotland’s economy defied forecasts of recession by growing 0.8% during the first quarter of 2017, according to new data.

The data for January to March shows the economy grew by 0.8% compared to the previous three months. On an annual basis, compared to the first quarter of 2016, the Scottish economy grew by 0.7%

During the first quarter of 2017 output in the services industry in Scotland grew by 0.3%, production grew by 3.1% and construction contracted by 0.7%.

Industries which represent a large proportion of the economy or which have big quarterly changes have the most impact on overall GDP. The industry which had the greatest contribution to change in the Scottish economy in the first quarter of 2017 is production (which accounted for 0.6 percentage points of total growth).

Scotland’s GDP statistics are seasonally adjusted, so regular patterns such as the increase in retail leading up to Christmas are taken into account and don’t affect the final figures.

Office for National Statistics data show that UK output per hour worked (productivity) fell 0.5% quarter-on-quarter in Q1 of 2017, which limited year-on-year growth to just 0.3%.

Keith Brown
Keith Brown: no room for complacency (photo by Terry Murden)

Economy Secretary Keith Brown said: “Today’s [Scottish] figures are welcome and reinforce the fact that the fundamentals of Scotland’s economy are strong. Scotland’s output is now 6% above the pre-recession level and unemployment is at its lowest ever level.

“Since late 2014 our growth rate has been impacted significantly by the fortunes of the North Sea with around two thirds of the slowdown in 2016 attributed to the onshore impact of lower oil prices. Today’s figures show a rise in output in industries linked to the North Sea for the first time since 2014. While there is no room for complacency, these figures – alongside a number of recent business surveys – indicate that there is growing confidence in the sector.

“Manufacturing output is also up, in part due to the resumption of steel production at the Dalzell plant after the Scottish Government intervened to save this key strategic asset. The re-opening of Dalzell is just one of the actions the Scottish Government is taking to boost manufacturing – we are also supporting expansion of the aluminium smelter at Lochaber and the development of a new manufacturing centre in Renfrewshire.

“While today’s figures are positive, we will continue to do everything possible to support the performance of Scotland’s economy, particularly as Brexit uncertainty continues to cast a shadow over the future economic outlook.

“The Scottish Government will continue to use all of the powers at our disposal, including our £6.5bn infrastructure plan and our new £500 million Scottish Growth Scheme which opened for bids last month.”

Hugh Aitken
Hugh Aitken: growth has been volatile

Hugh Aitken, CBI Scotland Director, said: “After a dismal 2016, Scottish economic growth has bounced back in the first quarter of 2017 to reach its highest rate in over two years. While this offers encouragement, we need to recognise that this comes from a relatively narrow base, with a surge in manufacturing output accounting for around two-thirds of the improvement.

“Growth in the services sector was also below-average and the further contraction in construction sector means that it has now been in recession for a full year.

“While the top line results are obviously welcome, we know that growth across Scotland has been volatile and that there is a clear need to focus on fixing the foundations of the Scottish economy. Productivity enhancing measures, a competitive tax regime and ensuring Scotland is a great place to do business are all vital to achieving this.  

‘These figures represent a real opportunity for businesses of all sizes and sectors to work with the Scottish Government. We need to push ahead with a pro-business agenda that can drive inclusive growth and deliver benefits to the whole of Scotland.”

Liz Cameron, chief executive of Scottish Chambers of Commerce, said: “The threat of a technical recession for the Scottish economy has been lifted and the level of growth recorded in the first quarter is ahead of expectations and significantly ahead of the overall UK figure.

“This is a huge sigh of relief for our economy.  The most significant contributor to this recovery has been the production sector and this reflects the positive signals that we have been detecting from Scotland’s manufacturers over recent months and, indeed, the returning signs of confidence from the oil and gas supply chain.

“This represents the best quarter of growth for the Scottish economy since before the effects of low oil prices began to emerge in 2015 and sparks hope for the future after a stagnant two years of anaemic economic performance.”

David Ogilvie, interim director of policy at trade body Homes for Scotland, said the figures also show a fifth consecutive quarter of contraction in construction.

“The ongoing decline in construction is extremely concerning and reflects the view of our members that it has never been harder to open new sites and get much needed homes out of the ground,” he said.

“It is particularly frustrating for us knowing that, if a more supportive policy framework to encourage housing investment was in place, home building could make even more of a contribution to boosting Scotland’s economic growth.  For example, research shows that a return to building pre-recession levels of 25,000 homes per annum could generate an extra £1.9bn in Gross Value Added each year.

“Crucially, this would help to fill the economic void that will be left by large, soon-to-be-completed infrastructure projects as well as support thousands of extra jobs and training opportunities.  It also offers significant wider social benefits such as improved health and education outcomes.”

Scottish Conservatives economy spokesman Dean Lockhart welcomed the figures but said the SNP still had work to do.

“The return to growth in the Scottish economy after declining in the last quarter of 2016 is a positive change in direction,” he said.

“However, the SNP cannot escape the fact it dragged Scotland halfway to recession. Scotland continues to under-perform the UK economy on an annual basis at this vital time for growth.

“Compared to the same period last year, the Scottish economy grew by 0.7% compared to two per cent for the UK economy as a whole.

“There are more than enough levers for ministers here to ensure growth north of the border remains sustained, and we’re not brought to the brink of recession again.

“For example, Scotland is the highest-taxed part of the UK, and in the long-term that is going to continue to damage growth and job creation.”

Scottish Labour’s economy spokesperson Jackie Baillie, said: “It is a huge relief that Scotland has avoided recession, but this was a narrow escape for our fragile economy.

“The long-term trend paints a worrying picture of Scotland’s economic performance, with the average annual change of just 0.5 per cent – a quarter of the UK-wide growth.

“The rise in output from industries linked to the North Sea is very encouraging, but recent history should have taught the SNP the danger of relying solely on this sector.

“Far from a vote of confidence in the economy, as Economy Secretary Keith Brown has claimed, Scotland is not out of the woods yet and SNP ministers need to redouble their efforts.

“They need to end their obsession with independence and focus on the day job of boosting jobs and productivity and supporting business.

“Following months of inaction by the SNP, Scottish Labour will this week unveil an industrial strategy for Scotland to grow our economy.”

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