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Winter chill to summer fruit, and then?

Douglas Fraser | 19:24 UK time, Wednesday, 22 July 2009

If there's one pattern that seems clear about Scotland in this recession, it looks like it's lock-step link to the fortunes of the wider UK economy.

It hasn't been hit by the Scottish banks' crisis as much as some feared.

But nor has its manufacturing been protected from the damage being inflicted on the English production sector.

The figures for gross domestic product released today by the Scottish Government show the Scottish economy falling by 2.4% in the first quarter of the year, and by 1.2% in the year to March.

That's very nearly the same as the UK.

The only difference is the basis for measuring output.

Striking differences

Comparing like-with-like on a measure economists recognise as Gross Value Added, the UK economy did marginally worse, with a 2.5% first quarter fall.

The sectoral differences are striking.

The public sector, including health and education, registered a little growth.

Yet despite big injections of public money, education 'output' has been in decline for five years.

An analysis by economists at Glasgow University's Centre for Public Policy for Regions (CPPR) says education is now 4% below its output peak.

The health sector continues to grow quite strongly, though the method behind its output figures is being reviewed.

In the private sector, utilities grew.

Tourist haunts

While services declined much less than production, but if you look at sub-sectors, note how bad it was for financial services, down by 4.4% in the first quarter, and business services, by nearly as much.

The CPPR reckoning highlights a fall in non-banking financial services of more than 25% from its peak.

That is hard to square with the relative robustness of asset management and insurance.

But then, some of these Scottish GDP figures need to be treated with some pinches of statistical salt.

Hospitality, for instance, has registered decline since 2001 - and although it is almost certainly facing a challenging recession, it doesn't feel like a long-term decline when you go to popular tourist haunts.

The Government statisticians admit their figures can be skewed, and are hard to disentangle from UK data.

We'll learn more about those UK figures on Friday, when the second quarter data are published.

Health warning

These, too, have to carry a health warning, after the first quarter figures were revised sharply downwards as more evidence of the recession's damage came in.

While recovery may not be as fast as some would like, the developing economy story is moving so fast that today's Scottish figures don't tell us all that much that we need to know about the future.

More significant is the buoyancy of Scottish retail spend, up 6.6% last month on June last year.

Among the strong product lines has been salads, summer berries, barbecue meat, flip-flops and anti-bacterial handwash to help fend of swine flu.

One explanation for that, which it's easy to overlook, is that last June was blighted by worrying inflation and a low level of consumer confidence - months before we realised how serious the financial crisis would become.

And CBI Scotland's survey of manufacturing finds a very mixed picture suggesting the bottom may soon be reached.

Order books are still in decline, but not falling as fast as earlier this year.

Severe cuts

Stocks have been run down, which could be an opportunity to restock, or it may mean problems in the supply chain.

An important message coming out of the employer organisation's survey is about exports.

Sterling's weakness over the course of the recession should have helped more than it has.

Export prospects and prices look increasingly depressed, and export prices look particularly weak.

The recovery will have to feature a significant, if not decisive, level of export demand - as domestic consumption has to be constrained in the medium to long-term, and as government spending faces some severe cuts.

So those manufacturers' concerns about overseas orders should be concerns for all of us.

Comments

  • Comment number 1.

    "Sterling's weakness over the course of the recession should have helped more than it has."

    Surely that would only apply if there is market demand in other economies?

  • Comment number 2.

    We still don't have enough fiscal autonomy to deploy our financial instruments to suit Scotland's future economic needs.

    Education establishments are springing up everywhere around the world, Distance learning and E-learning solutions will eventually render campus based learning obsolete. Where then the campus based Uni? and where then the money.

    We need to focus on the next step change in technological advancement.

    Huge IT infrastructure development to get fast broadband to everyone in Scotland. Home based knowledge workers will become the workforce of the future and Scotland needs to upskill people from producing goods, to producing information/IT products that compete on a World Stage.

    Renewables will also be the future (energy independence)we have Tidal, Wind and Hydro opportunities that would make our Oil resources look like a drop in the ocean when it comes to future generations.

    We need people in Scotland to be trained to design and construct the equipment for the future and then export that expertise to the rest of the world (at a price)

    Clean electrified public transport, electric buses, the hydrogen fuel cell. R&D and engineering the Alexander Graham Bells of the Future have to be paid appropriately.

    We must also build houses that don't throw away any of the enrgy we use while living in them - another area for growth.

    They have the EDEN project in England, IF Scotland had a bit of vision and the political will we could turn the whole of Scotland into Eden for everyone.

  • Comment number 3.

    These figures just give futher proof that unless Scots have fiscal autonomy our Parliament is just the "pretendy wee" of modern myth and should be scrapped to save money.

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