Fraser of Allander Institute : Economic Commentary [June 2015]

Fraser of Allander Institute; (2015) Fraser of Allander Institute : Economic Commentary [June 2015]. University of Strathclyde, Glasgow.

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Abstract

The Scottish and UK economies are continuing to grow and recover from the Great Recession. With growth of 0.6% in the final quarter of last year (2014) – the latest data point - the Scottish economy has now enjoyed positive growth for the last 11 quarters (since 2012q1) while in the UK, also with growth of 0.6% in 2014q4, the sustained recovery period has been shorter at 8 quarters. The introduction of a new system of accounts ESA 2010 has brought in to the production calculus some activities (such as research and development and military expenditure) that were not previously treated as outputs alongside the inclusion of previously uncounted ones (such as illegal activities). In consequence, the nominal value of GDP has risen by around 1 to 4% per year due to the addition of these new activities within the production boundary. A further consequence of these accounting changes is that the extent of the recovery from recession is now greater in both UK and Scotland but it i s stronger in the UK. When o il and gas production is removed – to compare like with like, since offshore activity is included in the UK but not the Scottish GDP data - we find that the gap in the strength of the recovery widens further in the UK’s favour. UK GDP stands 5.1% above the pre -recession peak compared to only 2.3% in Scotland. We speculate that the relatively stronger UK recovery under the new accounting system could be due to the recovery in R&D activity being stronger in the rest of the UK after the recession than in Scotl and and, if so, may not augur well for Scotland’s growth performance in the longer term. However, there may simply be a technical rather than an economic cause due, for example, to different sub-sectoral weights between Scotland and the UK.

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