Outlook and appraisal [December 2003]

Ashcroft, Brian (2003) Outlook and appraisal [December 2003]. Quarterly Economic Commentary, 28 (4). pp. 3-11. ISSN 0306-7866

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Growth in the Scottish economy picked up in the second quarter and may have continued to strengthen along with an increasing buoyancy of the UK and world economies. But Scottish growth is being driven by the service sector with manufacturing in sustained recession. The principal underlying uncertainty is the growth path of Scottish manufacturing. As noted above there is little sign at present of any upturn in electronics or in manufacturing as a whole. Export growth should pick up as growth in the US economy accelerates and as the Euro area begins to pick up. But the recent strengthening of the pound against the dollar may dampen the growth of Scottish manufacturing somewhat. The key question to be answered over the next few months is whether the positive income effect of accelerating world growth is more than sufficient to offset the negative price effect of rising dollar export prices of Scottish goods in the US and linked markets. Nevertheless, we feel sufficiently confident to raise our forecast for GDP growth to 1.3% this year, to 2.1% in 2004 and to 2.3% in 2005, While manufacturing is expected to show a significant fall in output this year of just over 5%, we are anticipating a modest rise of 1.4% in 2004 and somewhat stronger growth of just under 2% in 2005. The service sector meanwhile continues to be the engine of Scottish development with forecast growth of 2.9% this year, 2.5% in 2004 and 2.4% in 2005.