Scotlands Economy: 2017 Graeme Roy, Fraser of Allander Institute - - PowerPoint PPT Presentation

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Scotlands Economy: 2017 Graeme Roy, Fraser of Allander Institute - - PowerPoint PPT Presentation

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Scotlands Economy: 2017 Graeme Roy, Fraser of Allander Institute May 2017 Outline Our take on how the Scottish economy is doing. Recent developments & what we think the outlook is like for Scotland. Highlight some of the key

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Scotland’s Economy: 2017

Graeme Roy, Fraser of Allander Institute

May 2017

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www.strath.ac.uk/fraser

Outline

  • Our take on how the Scottish economy is doing.
  • Recent developments & what we think the outlook is like for Scotland.
  • Highlight some of the key longer term trends……

…….many of which will be familiar to those with an interest in the Scottish economy

  • ver the years but which have fallen off the agenda in recent times.
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www.strath.ac.uk/fraser

Growth in 2016?

  • Scottish economy grew 0.0% in 2016.
  • Alternative measure based upon 4Q-on-4Q: growth of +0.4%…
  • 4Q-on-4Q is the sum of the entire 4 quarters this year compared to the sum of last

year’s 4 quarters. If you have growth one year but none the next, the 4Q-on-4Q figure will always be positive!! And vice versa. Think of it like walking up a hill and reaching a plateau. You’re no longer going up!

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www.strath.ac.uk/fraser

A resilient labour market?

69 71 73 75 3 4 5 6 7 8 9 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Employemnt Rate (16-64) Unemployemnt Rate (16+)

Unemployment Rate (LHS) Employment Rate (RHS)

Source: ONS

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www.strath.ac.uk/fraser

But beneath the headlines some challenges…..

  • 60,000
  • 40,000
  • 20,000
  • 20,000

40,000 60,000 80,000 Uemployment (16+) Employment (16+) Economically Inactive (16- 64) Change over year to Dec-Feb 2017

Source: ONS

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www.strath.ac.uk/fraser

Explanation 1: Challenges in oil and gas

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 % GDP (including geographical share of NS) Extra-regio as share of Scottish GDP

Source: Scottish Government

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www.strath.ac.uk/fraser

Explanation 2: Wider challenges???

  • 7.0%
  • 6.0%
  • 5.0%
  • 4.0%
  • 3.0%
  • 2.0%
  • 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% GDP Production Construction Services GDP per head Annual % Growth (Q4 2016 vs. Q4 2015) Scotland UK

Source: Scottish Government

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www.strath.ac.uk/fraser

Explanation 3: Economic confidence in Scot…….

Source: Scottish Government

  • 10
  • 5

5 10 15 20 25 30 35 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 Balance of expectations (>0: +ve, <0: -ve) Economy Expectations Household Finances Expecations

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www.strath.ac.uk/fraser

Explanation 3: Consumer confidence in Scot…….

  • 25
  • 20
  • 15
  • 10
  • 5

5 10 15 20 25 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr 2015 2016 2017 Confidence Index (>0 = +ve; <0 = -ve)

Scotland = Red Other UK nations & regions = Grey PMI for Scotland been lowest amongst UK nations/regions since Sep 16

Source: GfK

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www.strath.ac.uk/fraser

Explanation 4: Brexit

  • Back in July, we argued that Brexit uncertainty would act as headwind on Scottish

economy.

  • Predicted relatively fragile growth over 2016, 2017 and 2018.
  • But undoubtedly true that UK economy has held up much better than most anticipated…..

but challenges beginning to emerge…….strength of consumer scaled back

  • Hard to fully explain Scotland’s weak performance is just driven by Brexit uncertainty.
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Scotland vs. the UK…….

  • 0.4%
  • 0.2%

0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015 2016 % Q on Q

Source: Scottish Government

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Signs of a more +ve outlook – RBS Business Monitor

  • 20
  • 10

10 20 30 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2014 2015 2016 2017 Net Balance Vol of repeat business Vol of new business

Source: Royal Bank of Scotland/FAI

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Long-term trends

  • Talk back in at start of financial crisis of a possible ‘lost decade’.
  • Over the last 10 years, output per head in Scotland – a key measure of economic progress

– has grown by just 1.2% (from Q4 2006 to Q4 2016). UK equivalent is 4.2%.

  • To put that in context, between Q4 1999 and Q4 2006, output per head in Scotland grew

17%

  • It’s nearly 10 years since ambitious targets were set for Scotland’s economy. So…..how are

we doing compared to these key Purpose targets?

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www.strath.ac.uk/fraser

Matching UK & EU economic performance

  • 3%
  • 2%
  • 1%

0% 1% 2% 3% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Percentage Gap

In only 12 (of 40) quarters since 2007 has Scotland’s annual growth been the same/better than UK. Roughly 50:50 when compared to small EU….but current small EU growth 2.4% vs. 0.4% for Scotland

Source: Scottish Government

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Productivity: To rank in top quartile in OECD by 2017

Scotland has caught up with UK. Scotland slipped into 3rd quartile but back in 2nd in 2015. Likely to fall in 2016 given weak data. Productivity still 20% below top quartile

2 4 6 8 10 12 14 16 18 20 2007 2008 2009 2010 2011 2012 2013 2014 2015 Scotland's OECD productivity ranking

Source: Scottish Government & OECD

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Participation: To maintain position as top performing country in UK

Labour market, Dec-Feb 2017 Employment (16-64) Unemployment (16+) Inactivity (16-64) Scotland 73.4 4.5 23.0 England 75.0 4.7 21.2 Wales 73.0 4.9 23.2

  • N. Ire

68.8 5.2 27.3 UK 74.6 4.7 21.6

Source: ONS

In 2007, Scotland had the highest employment rate of UK nations. England now 1.6 %-points ahead. Scotland slightly better on unemployment but weaker on inactivity

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Participation: To close gap with top 5 OECD

Latest data used to monitor target covers up to 2015. Gap = identical. Cohesion target: Still >15%-point difference between top and worst performing local authorities

New Zealand New Zealand 66 68 70 72 74 76 78 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Employment Rate (%) Rate in 5th highest OECD Scottish rate

Gap of 2.4 percentage points Gap of 2.4 percentage points

Source: Scottish Government & OECD

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Match average EU15 population growth over period from 2007 to 2017

  • 0.1%

0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% 0.7% 0.8% 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Percentage change on previous year EU 15 annual population growth rate Scottish annual population growth rate

One area where evidence of Scotland doing better. Driven in part by

  • ngoing migration

into Scotland – potential challenges if Brexit imposes constraints.

Source: NRS & Eurostat

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Conclusions

  • Scotland’s economy held up remarkably well during the financial crisis but recovery has

remained fragile. Challenges in North Sea have undoubtedly acted as a headwind.

  • That being said, policymakers will be concerned about the outlook for the Scottish economy

particularly with the new tax powers meaning that future Scottish budgets will depend on revenues generated in Scotland.

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