Dr Gary Gillespie, the Scottish Government’s Chief Economist, on the growth outlook for 20171:
Looking ahead, the outlook for growth in 2017 remains positive but at below trend growth.
There are emerging signs that confidence is returning to the oil and gas sector which, coupled with the structural improvements made by the industry since 2015, will put it on a stronger footing to take advantage of the opportunities which will emerge as cyclical factors improve.
The low value of Sterling is expected to support export led growth for the manufacturing sector, whilst continuing to rebalance the economy as rising import prices feed through to higher inflation, impacting real income growth and household consumption.
Brexit continues to present a significant risk to business and consumer sentiment in Scotland with investment sensitive to changing market signals. The range of independent forecasts for Scotland suggest growth of between 0.9% and 1.3% in 2017.
Employment statistics for February to April 2017 were released this morning. They show a continued decline in unemployment in Scotland. The figure now sits at 4%, the lowest of the four UK countries1, a decrease of 0.6% on the previous quarter (Nov 2016 to Jan 2017), and down 1.8% year on year. The BBC notes that 4% “equals the figure recorded between March and May in 2008.” In fact, it’s the joint-lowest since records began in 1992.
In March 2017 82.6% of jobs in Scotland were in the services industries. This compares to 91.9% in London and 77.9% in Wales.
For the period from January to December 2016, Scotland—along with the North East and North West of England—had the lowest average actual weekly hours worked in full-time jobs, at 36.9 hours. This compares to London’s 38.4 hours, the highest in the UK during 2016.
Despite apparently very little growth in the overall economy, Scotland’s labour market continues to hold up remarkably well.
Over the year to the 3-months January to March 2017, unemployment in Scotland fell 48,000 whilst employment levels rose 41,000.
The current rates of employment and unemployment are close to the best on record.
Levels of underemployment—that is people in work but who would prefer to work longer hours—have also fallen back towards pre-recession levels.
Scotland’s youth unemployment rate continues to outperform all other parts of the UK and compares favourably internationally.
…since the financial crisis there has been a rise in part-time employment (up around 9% since 2007). Within the part-time figures, there has been a 60% increase in the number of people who say the reason they are working part-time is that they cannot find a full-time job.
…nearly [three quarters] of the growth in Scottish employment over the last year was in the form of self-employment.
…there has been a further rise in economic inactivity—that is people not actively seeking work—of 15,000 over the last year.
In 2016, productivity as measured by output per hour worked in Scotland fell 1.5%.
Weak productivity levels will make it difficult for businesses to find new resources to support sustained wage increases.
The FAI also notes in its analysis that “the lack of growth in the wider economy—coupled with rising inflation—means that there is little prospect of a sustained improvement in people’s take-home pay.”
The data finds that in 2015/16 Scotland raised the fourth most (£10,230) in public sector revenue per person out of the UK’s 12 NUTS 1 statistical regions, and received the second most (£13,054) in terms of public sector expenditure. This resulted in a deficit of £2,824 per person.
Scotland’s deficit was the fifth biggest in the UK, behind Northern Ireland (£5,437), Wales (£4,545), and North East (£3,827) and North West (£3,043) England. Only the East of England, the South East, and London had a surplus.
We’ve created three graphs based on the data. You can explore all the data here.
Source: ONS—Country and regional public sector finances: Financial year ending March 2016, Table 3 (.xls).
Source: ONS—Country and regional public sector finances: Financial year ending March 2016, Table 5 (.xls).
To put the UK in context, the below chart from Eurostat shows just how big the disparity in GDP per capita is between London and the national average when compared with other EU countries.
(We’re not sure why the UK is the only country with two blue circles for ‘Capital region’. We’ve asked Eurostat about this and will update the page when they get back to us.) Update—Eurostat has informed us that the lower blue dot in the UK column is a visualisation error and in fact belongs to ‘Other NUTS regions’.
Disgraced former Royal Bank of Scotland chief executive Fred Goodwin will be back in the spotlight in a High Court trial starting this week that will delve into the disastrous events at the bank in 2008.
The £700m High Court case has been brought by thousands of RBS shareholders who allege they lost money in a £12bn rights issue launched by the bank in June 2008. A few months later, RBS had to be bailed out by the British government to the tune of £45.5bn.
The investors claim the rights issue prospectus contained misleading statements about the true financial position of RBS under Mr Goodwin’s leadership. RBS and four ex-directors named as defendants including Mr Goodwin deny wrongdoing. Mr Goodwin will testify under oath for the first time during the trial.
Royal Bank of Scotland … has tried to reach a last-minute settlement with a group of investors who allege that the lender misled them over a 2008 capital increase, according to two people close to the matter.
A successful settlement would save RBS from a lengthy and potentially embarrassing trial, at which its former Chief Executive Fred Goodwin would face scrutiny over his decision-making and leadership at the time of the lender’s near-collapse.
A British judge has given Royal Bank of Scotland … a week to avoid a trial by reaching a deal with investors who allege the bank misled them over its 2008 fundraising.
Judge Robert Hildyard adjourned the case on Wednesday until June 7, but warned this would be the final chance to reach an out-of-court settlement and said the two sides must inform him whether a settlement has been reached by June 1.
RBS has already offered almost 1 billion pounds ($1.3 billion) to avoid a trial that would rake over its near collapse and state bailout during the height of the credit crisis and bring former chief executive Fred Goodwin to court.
Fred Goodwin, the former chief executive of Royal Bank of Scotland, is likely to escape a potentially embarrassing court appearance after the bank reached a legal settlement in principle with a shareholder action group.
The group, which represents about 9,000 RBS investors, said on Monday that it would accept 82p a share from the bank.
National accounts for the fourth quarter of 2016 were released today. Headline results from the Government’s publication:
During the fourth quarter of 2016, Scottish onshore GDP decreased by 0.2% in real terms. In 2016 as a whole, GDP increased by 0.4% compared to 2015. These results are re-printed in this publication without revision following their release on 5 April 2017.
During 2016 as a whole, the value of Scottish onshore GDP is estimated at £149.8 billion in total, or £27,839 per person.
Including a geographical share of UK extra-regio (offshore and overseas) economic activity, Scottish GDP is estimated at £159.0 billion during 2016, or £29,554 per person.
Analysis of the expenditure measure of onshore GDP shows that growth over the latest 12 months was mostly driven by consumer spending, but with positive contributions also made by government, capital investment and exports. There was a negative contribution to GDP growth from the widening of the onshore net trade deficit, due to the increasing value of imports.
Manufactured Exports make up around half of the total value of exports from Scotland to the rest of the world (excluding oil and gas). The Index of Manufactured Exports (IME) fell by 2.3% in volume terms during the fourth quarter of 2016. Comparing the most recent four quarters to the previous four quarters (4Q-on-4Q growth), the volume of manufactured exports fell by 5.3 per cent.
Over the year to 2016 Quarter 4, total consumer spending by the Household and NPISH sectors is estimated to have increased by 2.9% in current prices (unadjusted for inflation, not real terms)
Gross Disposable Household Income (GDHI) is estimated to have increased by 1.6% over the year to 2016 Quarter 4 (in current prices, not real terms). The Household Savings Ratio is 2.6 per cent in the latest quarter.
Some charts and analysis based on the data…
The below chart shows GDP per capita from 1998 to 2016, with and without North Sea oil and gas:
GDP grew by 0.4% in real terms from 2015 to 2016, but growth was flat (+0.01%) if you compare Q4 2016 with Q4 20151.
As highlighted by The Scotsman, North Sea oil revenues in 2016 were negative for the first calendar year on record2. The below chart shows how onshore and offshore revenue have contributed to Scotland’s public finances since 1998:
Both North Sea and overall revenues had been falling since 2011. However, there was a levelling off of total revenue in 2015, and in 2016 total revenue rose by £2.1 billion despite oil revenues being negative. Let us hope this is the beginning of an upward trend.
The chart below shows Gross Value Added (GVA)3 by broad industry group:
Services is by far the biggest contributor, with a weight of 76% of GVA, and 67% of GDP. Services grew by 1.8% in real terms in 20164, but shrank by 0.04% in real terms in the last quarter of 20165. For the UK as a whole, the ONS’s latest figures show that services make up 79% of UK GDP.
14 May: Added chart showing real-terms GDP (chained volume index) since 1998
13 May: Added chart showing GVA by broad industry group
12 May: Added chart comparing onshore and offshore public sector revenue since 1998
Exports of Scotch whisky increased by 4% in 2016 to just over £4 billion, the Scotch Whisky Association (SWA) announced on 28 April. The top three destinations last year were the EU (31% at £1.24 billion, growth of 3.6%), North America (26%; £1bn; +10.6%), and Asia (20%; £768 million; +1.8%). The increase in exports comes after falls in 2014 and 2015.
SWA analysis finds that “[i]n net terms Scotch Whisky remained the biggest contributor to the [UK] balance of trade in 2016—ahead of other sectors such as aircraft, cars, medicinal and pharma, electrical machinery and crude oil.” The analysis also shows that “[i]n 2016, without the impact of the Scotch Whisky industry, the UK trade in goods deficit would have been £3.8bn wider or 2.8% worse off at almost £139bn.”
The analysis also notes: “Food and drink exports from Scotland reached £5.5bn [in 2016], an 8% increase year on year, with Scotch accounting for 73% of all Scotland’s food and drink exports.”
Some other fun facts from the press release:
Up 4% in customs value on 2015 to £4,008,927,149—worth £127 per second
Volume up almost 5% to more than 1.2 billion bottles—almost 39 bottles exported every second
Single Malt Scotch exports worth more than £1bn for the first time—up almost 12% to £1.02bn. This is the equivalent of 113m bottles shipped overseas
Scotch was directly exported to 182 countries, up from 174—showing its truly global nature
“There is one other possibility, that is to have that some UK citizens may maintain citizenship of the European Union and others won’t. And this is a bit of a provocation… It is… Nothing prevents a part of the United Kingdom to stay and another part of the United Kingdom to leave. We have a precedent with that; it’s called Greenland. We have the case of one member state where part of its territory left the European Union and another part stayed. So, in principle, nothing will prevent for the territories, for example, of Northern Ireland and Scotland to stay in the European Union, and for the rest of the territory of the United Kingdom no longer to be part of the European Union.
“Of course, this will be complex to organise in practice, it will require a border inside a member state, because it will basically mean that Scotland and [Northern] Ireland will remain part of the European Union and part of the United Kingdom. But it will not be impossible.
“Still, it will be again very problematic in political terms, and the consequences of it will make it difficult. If we think about it… I think, on the one hand one risk will be economic—for the UK—because naturally you will have… I will say for Scotland and Northern Ireland, it would be extremely positive. They will attract lots of investment and companies that will locate in those territories because they could benefit from both those markets. But of course for the rest of the United Kingdom it will be even more dramatic because there will be economic mobility to that part of its territory.
“For the European Union, the difficultly will be that if this will take place without the UK formally leaving as a state—because part of its territory will stay, in the same way that happened with Denmark and Greenland—it will mean that the representation of that part of the territory would be made by the UK government; not by the Scottish and the Northern Ireland governments. For this to be done, without leaving and then coming in as Scotland and Northern Ireland to be then in terms of state secession, the representation of this part of the territory will have to continue to be done by the United Kingdom central government.
“Of course, there will be the possibility to leave as [the] UK and come in as part of the UK. That will be another alternative.”