Scotland’s Economy: 2017 Graeme Roy, Fraser of Allander Institute May 2017
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? 9 75 8 Unemployemnt Rate (16+) Employemnt Rate (16-64) 7 73 6 5 71 4 Source: ONS Unemployment Rate (LHS) Employment Rate (RHS) 3 69 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 www.strath.ac.uk/fraser
But beneath the headlines some challenges….. 80,000 60,000 Change over year to Dec-Feb 2017 40,000 20,000 - Uemployment (16+) Employment (16+) Economically Inactive (16- 64) -20,000 Source: ONS -40,000 -60,000 www.strath.ac.uk/fraser
Explanation 1: Challenges in oil and gas 20% 18% % GDP (including geographical share of NS) 16% 14% 12% 10% 8% 6% Extra-regio as share of Scottish GDP 4% Source: Scottish Government 2% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 www.strath.ac.uk/fraser
Explanation 2: Wider challenges??? 4.0% 3.0% Annual % Growth (Q4 2016 vs. Q4 2015) 2.0% 1.0% 0.0% GDP Production Construction Services GDP per head -1.0% -2.0% -3.0% -4.0% -5.0% Source: Scottish Government -6.0% -7.0% Scotland UK www.strath.ac.uk/fraser
Explanation 3: Economic confidence in Scot……. 35 Economy Expectations 30 Household Finances Balance of expectations (>0: +ve, <0: -ve) Expecations 25 20 15 10 5 0 Source: Scottish Government Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 -5 -10 www.strath.ac.uk/fraser
Explanation 3: Consumer confidence in Scot……. 25 20 Scotland = Red Confidence Index (>0 = +ve; <0 = -ve) 15 10 Other UK nations & regions = Grey 5 0 -5 -10 PMI for Scotland -15 been lowest amongst -20 Source: GfK UK nations/regions -25 since Sep 16 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr 2015 2016 2017 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……. 1.2% 1.0% 0.8% 0.6% % Q on Q 0.4% 0.2% 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015 2016 -0.2% Source: Scottish Government -0.4% www.strath.ac.uk/fraser
Signs of a more +ve outlook – RBS Business Monitor 30 20 10 Net Balance 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2014 2015 2016 2017 Source: Royal Bank of -10 Scotland/FAI Vol of repeat business Vol of new business -20 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% In only 12 (of 40) Source: Scottish Government quarters since 2007 has Scotland’s 2% annual growth been the same/better 1% than UK. Percentage Gap 0% Roughly 50:50 -1% when compared to small EU….but -2% current small EU growth 2.4% vs. 0.4% for Scotland -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 www.strath.ac.uk/fraser
Productivity: To rank in top quartile in OECD by 2017 20 Scotland has caught up with UK. 18 16 Scotland slipped Scotland's OECD productivity ranking into 3 rd quartile but 14 back in 2 nd in 2015. 12 Likely to fall in 2016 10 given weak data. 8 Productivity still 6 20% below top quartile 4 Source: Scottish Government & OECD 2 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 www.strath.ac.uk/fraser
Participation: To maintain position as top performing country in UK Labour market, Dec-Feb 2017 In 2007, Scotland had the highest Employment Unemployment Inactivity employment rate of (16-64) (16+) (16-64) UK nations. Scotland 73.4 4.5 23.0 England now 1.6 England 75.0 4.7 21.2 %-points ahead. Wales 73.0 4.9 23.2 Scotland slightly N. Ire 68.8 5.2 27.3 better on UK 74.6 4.7 21.6 unemployment but Source: ONS weaker on inactivity www.strath.ac.uk/fraser
Participation: To close gap with top 5 OECD 78 Latest data used to Gap of 2.4 Gap of 2.4 monitor target percentage points percentage points covers up to 2015. 76 New Zealand Gap = identical. New Zealand Employment Rate (%) 74 Cohesion target: Still >15%-point 72 difference between top and worst performing local 70 authorities Source: Scottish Government & OECD 68 Rate in 5th highest OECD Scottish rate 66 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 www.strath.ac.uk/fraser
Match average EU15 population growth over period from 2007 to 2017 One area where 0.8% evidence of 0.7% Scotland doing Percentage change on previous year better. 0.6% Driven in part by 0.5% ongoing migration 0.4% into Scotland – potential challenges 0.3% EU 15 annual population if Brexit imposes growth rate 0.2% constraints. Scottish annual population growth rate 0.1% Source: NRS & Eurostat 0.0% -0.1% 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 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. www.strath.ac.uk/fraser
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