1. Today’s GDP figures show that the Scottish economy shrank by -0.2% in the final quarter of 2016. Compared to the same quarter in 2015, the Scottish economy has not grown. While the general expectation was that today’s figures would indicate a continuation of the weak economic performance observed through the first three quarters of 2016, the fact that the economy shrank at the end of 2016 was a surprise.
2. In contrast, the UK economy grew by 0.7% in the final quarter of 2016, and by 1.9% relative to the same quarter in 2015. The chart below illustrates the relative performance of UK and Scottish GDP between 2014 and 2016.
UK & Scottish GDP 2014-2016
3. Scotland’s weaker growth performance cannot be explained by its slower population growth. On a per-capita basis, the Scottish economy shrank by -0.3% at the end of 2016 compared to growth in the UK of +0.5%. Over the year as a whole, comparing 2016 Q4 with 2015 Q4, Scottish GDP per-capita shrank by -0.2% compared to growth of +1.2% in the UK. UK and Scottish GDP per capita between 2014 and 2016 are summarised in the chart below.
UK & Scottish GDP Per Capita 2014-2016
4. In comparing annual changes, the figures we have used so far compare the size of the economy in Q4 2016 with the size of the economy in the same quarter in 2015. This is the most common way of thinking about annual growth, and makes sense: we’re usually interested in whether the economy using the latest quarterly data is larger than it was a year previously. An alternative approach, and one favoured by the Scottish Government in its press release today, is to compare the average size of the economy during 2016 with the average size of the economy during 2015 (so-called 4Q on 4Q changes). The National Statistics publication released with the data today explains this nicely:
“An alternative measure of change compares the average of the most recent four quarters with the average of the four previous quarters. This figure is less affected by short-term fluctuations, but the trade-off of this is that it is a less sensitive measure of short term change.”
According to the 4Q on 4Q measure the Scottish economy did grow slightly through 2016 at 0.4%; however this still represents significantly slower growth than that observed for the UK (+1.8%) using same measure. The table below summarises these different measures.
5. A striking feature of the data today was the lack of any growth in the all-important services sector in the final quarter of 2016. Given the importance of this sector to the health of the overall economy, this is a real worry. However, on an annual basis, this sector did grow by +1.6% (or +1.8% on a 4Q-on-4Q basis) in 2016. Nevertheless, the Scottish services sector has been lagging way behind the equivalent UK sector-illustrated in the chart below. This matters because, given its sheer scale, this is actually the biggest driver of the relative gap in performance between the UK and Scottish economies.
UK & Scottish Service Sector output 2014-2016
6. Performance in the Scottish manufacturing sector has also been poor, with output shrinking by -0.9% at the end of 2016; and the sector contracting by -4.6% over the year. Worryingly, all parts of the manufacturing sector declined during 2016. The Food & Drink sector, for instance, shrank by -6.6% over the year, with a similar decline (-6.3%) in the Metals, Metal Products & Machinery sector.
7. Finally, it is worth noting that the data released today underline the concern that we’ve emphasised about the weakness of growth in the Scottish economy over the past two years. It is critical that both the UK and Scottish Government act to support the Scottish economy. Poor economic growth has implications for growth in jobs and wages, as well as the resources available to both governments to fund public services.