The latest Scottish GDP/GVA figures for the first quarter of this year do not make pleasant reading. With GDP falling by -0.1% during the quarter, the Scottish economy moved back into a technical recession. GDP has fallen for two successive quarters by 0.1% in both quarters.
It is little comfort that the UK fared worse with GDP/GVA falling by -0.3% and -0.4%. (A technical note: the data published today are rounded to one decimal place. This can marginally effect growth rate calculations. In the next Commentary we should by then have access to the unrounded data and so will redo the calculations.)
The overall position is presented in the first chart.
After revisions to both Scottish and UK data the track of the 2008-2009 recession and recovery is now much similar in the two jurisdictions. But note that GDP in Scotland is still 4 percent below the pre (2008/09) recession peak, while the position in the UK is slightly better at -3.6 percent.
We may be in a new recession but we have effectively been in a drawn out slump, a depression, for the last two years.
However, the overall GDP data flatter Scotland slightly. North Sea oil production is fully included in the UK GDP data but only on-shore activities are included in the Scottish data. Oil production in the UK waters has been falling rapidly over the past year, see this post. This distorts the Scotland-UK overall GDP comparison. A more correct comparison is, therefore, to compare GVA for the two excluding the extraction of oil and gas. This is done in the next chart.
The chart clearly shows that despite recent weakening in GVA/GDP the UK recovery is stronger. In the first quarter of this year UK GVA ex oil and gas stood at nearly 3 percent below the pre (2008/09) recession peak. The Scottish figure was -3.8%.
A closer reading of the data offers some good and bad news for Scotland.
The good news is that both the large service sector, the production sector and within which manufacturing did not contract in the latest quarter. The production sector grew by 1.2 per cent with manufacturing growing at 0.9 per cent and a strong performance for the utility industries. The service sector grew slightly by 0.2 per cent. In contrast, UK the production fell by -0.5 per cent while manufacturing contracted by -0.3 percent, with a weaker performance from the utility industries than in Scotland. Services grew in the UK by 0.2%, the same as in Scotland.
What led to falling GDP overall in Scotland and to the large fall in first quarter GDP in the UK was the performance of construction. Scottish construction contracted by a massive -6.9 percent. This was worse than the fall in UK construction output of -4.9 percent. The collapse in construction activity played a key part in the 2008-09 Great Recession as this research shows. This is emphasised by the chart of GVA in Scottish and UK construction below.
What is evident from the chart is that the deterioration in both Scottish and UK construction is beginning to approach what happened in 2008/09. In fact the recent deterioration in Scottish construction GVA almost exactly parallels what happened in that recent Great Recession.
This decline in Scottish construction is seen in the RICS Construction Market Survey published today which highlights, as the Scotsman notes, that
the number of infrastructure construction projects in Scotland has fallen despite Scottish Government attempts to boost investment and growth.
Against this background the UK government proposals published for a £40 billion infrastructure programme would appear to be appropriate. However, a closer examination of these proposals suggests that there is no new money; there is a Government guarantee to the private sector. But no guarantee that the work will be undertaken. And little likelihood that there will be an impact if this work is undertaken by the private sector for at least a year or more.
Too little too late.
The UK economy needs more government spending and more investment spending now, as Simon Wren Lewis cogently argues here.
Until then this depression is likely to continue.
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