Scottish Economy Watch

A Developing Taste for Scottish Goods?

Today's manufactured export figures are welcome. They show a rise in volumes of 0.8% in July - September last year over the second quarter performance. Over the year to the third quarter real exports nevertheless fell by -0.8%.

I was, therefore, a little surprised to read these comments from Finance Secretary John Swinney on the latest figures

" ... it is clear that many counties have developed a taste for Scottish goods ... Our excellent natural larder guarantees some of the best produce in the world and this reputation for quality is paying dividends."

The chart below shows just where Scottish manufactured exports are.

This statement from the Release is formally correct:

The index of manufactured exports fell more than 13 per cent during the recession in 2008/9. Since then the trend in the results shows a recovery in export volumes, although the quarterly growth rates have been relatively volatile. The latest results show that export volumes remain around 10 per cent below their pre-recession level.

But the statement does not tell the full story.

Manufactured export volumes were falling before the GDP recession began - from 2007Q2. They then fell by 16.5% and began to pick up a quarter before the end of the GDP recession. With the latest data, export volumes, now stand at 13% below the 2007 peak. Yes, there has been a recovery but it has been weak and appeared to have run out of steam from 2011Q2.

Moreover, it can be seen that the present situation is worse than the position in the early 2000s after the shock to Scotland's manufacturing exports of the collapse of the electronics industry. Although, in mitigation the downturn then was structural affecting mainly one sector, whereas today the malaise is more general.

We do need to be grateful to the export performance of the food and drinks industry and whisky in particular. The data show that without growth of 5.9% in food and drink during the quarter, manufacturing exports would have contracted by nearly 1%. The position is a little better over the year with engineering making a small positive contribution along with food and drink. But the weak performance of the other sectors resulted in negative growth over all.

Some recovery; some dividend!

Our Recovery Just Got Better!

The latest Scottish GDP data for the third quarter of last year, which were published this morning, provide interesting reading.

The data are interesting for much more than what they tell us about the performance of the Scottish economy in the latest quarter. Improvements to the underlying statistical methodology and source data have changed the whole profile of Scotland's recovery from the Great Recession both absolutely and relative to the UK.

First, the release shows that the Scottish economy grew by 0.6% in the third quarter, compared to growth of 0.9% in the UK. This is a commendable Scottish performance. It is commendable because the so-called 'Olympic bounce' was expected, is likely to have been, much weaker here than in the UK. So, you might say that the 0.6% figure represents genuine growth in Scotland whereas the 0.9% UK figure has a good element of 'flash in the pan'.

Beneath the aggregate figures the Scottish data showed that manufacturing turned in a strong performance with growth of 3% in the quarter and 0.6% over the year. This can be compared with the performance of UK manufacturing which grew by only 0.7% in the quarter and contracted by -1.5% over the year. Similarly, construction also performed better here, in so far as the sector contracted by less here! Scottish construction GVA fell by -0.4% in the quarter and -7.1% over the year - a scary number. But UK construction contracted by -2.5% in the quarter and -11.2% over the year - even more scary!

However, the important services sector, which accounts for 72% of Scottish GDP and 77% of UK GDP, was weaker in Scotland in the third quarter. Scottish service GVA grew by 0.3% here compared to growth of 1.2% in the UK. But over the year the service sector in Scotland grew by 1.3%, identical to UK service sector growth.

The performance of Government services still looks anomalous in the UK with GVA continuing to expand by 1.6% in the quarter and 2.8% over the year. Government and other services in Scotland, more realistically, contracted by -0.1% in the quarter and rose by 0.1% over the year.

But what is perhaps more interesting than the third quarter results is the effect of methodology and data source revision on the nature and profile of Scotland's recovery from recession.

The Release states that

This publication incorporates a number of updates to methodology and source data. This is the first Scottish GDP publication fully based on the Standard Industrial Classification (SIC) 2007, which is a major revision to the previous SIC 2003. As part of this process, annual GVA weights since 1998 for each industry have been updated following their estimation in a SIC 2007 based Supply-Use framework. The most recent annual GVA weights now relate to 2009, updated from 2007 in the previous publication. This update means that the latest estimates better reflect the current structure of the Scottish economy.

It also means that there is a more accurate like-for-like comparison with the UK.

The effect on Scotland's recovery from recession is marked.

The last quarter data looked like this

But in today's data for the 3rd quarter, after revisions and adoption of the latest industry weights to be directly comparable with the UK, we get this chart

The three quarters of negative growth to the second quarter evident in the previous release have now reduced to two. The scale of the Great Recession is slightly reduced to a drop of -5.6% rather than-5.8%. And now Scotland stands with the UK in being just under 3% below the pre-recession peak, whereas in the previous quarter Scotland was more adrift from the UK.

The Scottish recovery is still slightly weaker than the UK but not by much.

Hey, our recovery just got better!

(A more detailed analysis of the Scottish GDP data and the wider context will be provided in the Fraser of Allander Institute's Economic Commentary to be published in early March.)