A summary of today’s GDP data; headline growth at 0.2% in Q1

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Today saw the release of fresh data on the Scottish economy from the Scottish Government. In this blog we highlight the key trends in these data. The headlines are:

  • New data show that the Scottish economy grew by 0.2% during the first three months of 2018, the UK economy only grew by 0.1% during the same period.
  • Over the past year the Scottish economy has grown by 0.8%, compared to UK growth over the same period of 1.2%.
  • On a per-capita basis the economy grew by 0.1% in Q1 2018, meanwhile GDP per-capita fell 0.1% for the UK as a whole.
  • Activity in the construction sector once again fell (3.5%) this quarter, dragging headline growth down.

In last week’s FAI Economic Commentary we outlined our view that, despite the potential for weak growth in the first three months of 2018 due in part to the bad weather experienced at the end of February and start of March, growth would pick up in the Scottish economy in 2018 but remain below trend.

The data today are consistent with that outlook.

The Scottish economy grew by 0.2% in the first three months of 2018, in contrast to weaker growth in the UK as a whole of 0.1%.

Neither set of figures are impressive, however it is the first time in a year that the Scottish economy has grown (however marginally) quicker than the UK as a whole. Illustrated below.

Growth UK and Scotland comparison, Q1 2015 – Q1 2018

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Source: Scottish Government

As we have said over the past couple of years, the Scottish economy has been experiencing a period of exceptionally weak growth.

GDP per person has grown only 1.5% in total over the past decade. To put this into perspective, the chart below illustrates where GDP per person in Scotland would now be if it had stayed on its pre-2008 growth trend.

GDP and GDP per capita growth in the Scottish economy, Q1 2008 – Q1 2018

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Source: Scottish Government

Sectoral story

Looking in more detail at the sectoral data, we can see that as we have discussed previously, the downturn in the construction sector continues to have a big impact on headline growth.

Stripping out construction activity from the headline GDP data we can compare growth in the overall economy to growth in all other sectors excluding construction.

In the most recent data, growth in the overall economy of 0.2% compared to growth in the economy excluding construction of 0.5%.

Scotland’s GDP and GDP excluding the construction sector, Q1 2015 – Q1 2018

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Source: Scottish Government

ONS data on output in the construction sector – on which the Scottish GDP series for the construction sector is based- appears to show substantial increases in construction sector output in Scotland though 2015.

This has been explained as being the result of a large number of public sector projects being undertaken in this period and subsequently coming to an end. However, when we look at data on employment in the construction sector, we see a very different pattern.

Workforce Jobs and ONS Output in the Construction Sector for Scotland

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Source: Office for National Statistics

For the reasons identified in the FAI Economic Commentary last week, we find the trend in both the ONS ‘Output in the Construction Sector’ and as a consequence the Scottish Government GDP data for the Construction sector very puzzling.

Aside from the construction sector, there are other sectors which have recorded noteworthy growth in the latest data.

In aggregate, Production sectors grew their output by 0.9% this quarter, substantially quicker than the rest of the economy.

Growth of production sectors and contributions to GDP growth in manufacturing

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Source: Scottish Government

The chart above highlights that most of the growth in production took place within manufacturing sectors.

In turn this growth was largely driven by a small number of manufacturing sectors which registered particularly strong growth in the first three months of the year.

The refined petroleum sector grew by 6.7% this quarter and its activity is up 4.1% since last year. Computer, Electrical and Optical products recorded 8.5% growth in output this quarter. Finally, food, beverages and tobacco, saw its activity increase by 1.6% in the first three months of 2018, taking its growth since last year to 2.8%.

Conclusions

As we outlined in the FAI Economic Commentary last week, the Scottish economy is experiencing a period of weak growth, as confirmed by the new data released today.

We anticipated that, as a result of the bad weather on economic activity in the early part of 2018, growth in Q1 might be somewhat sluggish.

Nevertheless, we believe that growth in 2018 will be stronger than in 2017. As we argued last week, we would expect at least some degree of ‘bounce back’ in the economy reflected in the data for Q2 released later this year, and that the next set of GDP data would give us a better gauge on the health of the Scottish economy in 2018.

As shown above, activity in the construction sector continues to drag down headline growth, but as we’ve highlighted in this blog, the underlying construction sector data from ONS are somewhat puzzling, not least when compared to employment in the construction sector in Scotland.

Brexit continues to provide a headwind for the Scottish economy, and increasingly the UK economy, and ongoing uncertainty continues to act as a drag on business investment activity.

June 27, 2018