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Fraser of Allander Institute : Economic Commentary [March 2014]

Fraser of Allander Institute (2014) Fraser of Allander Institute : Economic Commentary [March 2014]. [Report]

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Abstract

The latest economic data provide further evidence of a strengthening recovery. Positive growth has now been recorded for the Scottish economy in the last 6 quarters. In the third quarter, GDP in Scotland was -0.9% below the pre-recession peak, whereas UK G DP stood at -1.9% below its pre-recession peak more than 5 years ago. But during 2013, the UK recovery has again been stronger in each of the three quarters of published data so far. When oil and gas production is removed from the UK figures to make UK GDP comparable to the Scottish data, which do not include offshore production we find that the long period of weak oil and gas production has resulted in the UK GDP - ex oil & gas - having a much stronger recovery from recession than Scottish GDP. Scottish GD P has recovered by 4.9% since the trough of recession while UK GDP - ex oil & gas - has recovered by 6.8% from its trough. At the industry level, Scottish services' growth is underperforming the overall performance of the economy in the recovery whereas that is not the case in the UK where the recovery in services has been somewhat quicker. It is the production sector that has boosted Scottish growth, growing by nearly 10% in the recovery while it has been a significant drag on the recovery in the UK with zero growth since the trough of the recession, which is partly a consequence of the weakness of oil & gas production on the UK production and GDP figures. It is the performance of manufacturing that is the main driver of the differential performance in production between Scotland and the UK. Scottish manufacturing GVA continues to stand at - 4.6% below the 2008 -09 pre- recession peak, while the figure for UK manufacturing has dropped slightly to -9% from - 9.8% in the second quarter. The favourable gap between Scotland and UK manufacturing performance during the recovery therefore continues to be large. In Scottish construction whi le growth in the sector has picked up since the heavy recession period of 2010q4 to 2012q1 performance appears to have weakened relative to the UK from the start of last year. The sector is still very much depressed in both the UK and Scotland. However, the recent stronger performance of UK construction is evident with GVA in the sector in the third quarter -10.9% below its pre -recession peak compared to -13.6% in Scotland. Business and financial services continue to contribute positively to the growth of t he Scottish economy. By the latest quarter, the sector in the UK had moved to +1.3% above its pre-recession peak from -0.4% in the previous quarter, while its Scottish counterpart moved further ahead to stand at 2.2% above its pre-recession peak. In the pr evious two Commentaries, we noted that the aggregate GVA data for business and financial services in Scotland masked significant differences between the performance of financial services on the one hand and business services on the oth