Thursday, 29 June 2017

Scots Economy in 'Precarious' Position, Experts Warn

BBC - Scotland's economy is in a "precarious position" with a recession "in the balance", experts have warned.

A report from the Fraser of Allander Institute said Scotland seemed to be "stuck in a cycle of weak growth".

The Strathclyde University think-tank said that while growth is forecast to pick up in coming years, it is "likely to continue to lag behind the UK".

Ministers insist that the fundamentals of the Scottish economy remain strong, highlighting Brexit as a key challenge.

Figures are due out at the start of July which will confirm whether or not the Scottish economy has formally gone into recession - defined as two consecutive quarters of falling output.

The Fraser of Allander Institute report said that "on balance it is likely to be a close run thing".

It forecast growth at 1.2% for 2017 as a whole, 1.4% for 2018 and 1.6% for 2019.

'Increasing concern'

The analysis includes some positive news - an apparent pick-up in business activity, unemployment at a record low and sectors like food and drink and tourism benefiting from the low value of the pound.

However, it also voices "increasing concern" about the slowdown apparently spreading across a wider set of industrial sectors.

It said political factors like Brexit "cast a shadow over the outlook", but said that this and the downturn in the oil and gas sector could not be solely to blame. The report said that "Scotland's economy seems to be stuck in a cycle of weak growth, declining confidence and poor investment and net export figures".

Fraser of Allander director Graeme Roy said the scale of the gap between the Scottish economy and that of the UK as a whole was growing.

He said: "On balance, our forecast is that growth will return in 2017, with tentative signs of a more positive outlook for Scotland's oil and gas sector and improving order books across Scottish businesses.

"In the current climate sentiment can change quickly. Should the upcoming Brexit negotiations go badly, or the UK economy slows down more quickly than anticipated, then Scotland's economic prospects could take a sharp turn for the worse.

"That being said, a number of sectors should post relatively healthy returns this year. In particular, Scotland's food and drink and tourism sectors should benefit from the low value of Sterling.

'Emerging confidence'

Economy Secretary Keith Brown said there was good news in the report, highlighting projected growth in the financial and business services, tourism and food and drink sectors.

He said: "This comes after good news for Scottish jobs. Scotland's unemployment rate is at record low levels of 4% - equalling the previous all-time low - and is also at its lowest rate since the recession, and much lower than Fraser of Allander's post-Brexit forecast of 7% for this year.

"And while challenges remain, the report also confirms emerging signs of confidence returning to the oil and gas sector, building on recent reports from Bank of Scotland and Aberdeen and Grampian Chamber of Commerce.

"While these signs are encouraging, we must be clear that the biggest threat to Scotland's economy continues to be Brexit - as this report makes clear.

"To avert the 'Brexit negotiations going badly', as the report states, the UK government must work with us and the other devolved administrations with the aim of keeping the UK and Scotland in the single market and customs union."

Opposition leaders said the report showed the Scottish government must do more to support the economy.

Scottish Conservative economy spokesman Dean Lockhart said: '"As this report states, whether or not Scotland officially enters recession hangs in the balance. And that's while the rest of the UK powers ahead, so the SNP can't possibly blame Brexit.

"This is on the Scottish government's shoulders, and it has to explain what it is going to do to kick-start the economy it is in charge of.

"Make no mistake, Scotland has great potential. But that potential has been utterly neglected by an SNP government which has its priorities focused elsewhere."

Labour's economy spokeswoman Jackie Baillie said Scotland was "teetering on the brink of recession because Nicola Sturgeon has been more interested in running a campaign for a second independence referendum than running a government".

She added: "Every time difficult figures for our economy are announced SNP ministers claim the fundamentals of our economy are strong. ministers must take their heads out of the sand and stop being complacent.

"With the new powers of the Scottish Parliament and the budget for public services more dependent on Scottish tax revenues than previously, we need a government with a laser focus on growing the economy and creating jobs."

Source: BBC News

Monday, 26 June 2017

SDI Reveals 10% Increase in Jobs Secured from Inward Investors

Scottish Development International’s promotion of Scotland as a place to do business secured 7839 jobs in Scotland during 2016/17, an increase of 10% on the previous year, it was announced today.

The news follows the publication last month of the 2017 EY Scotland Attractiveness survey, which ranked Scotland as the most attractive UK location for FDI, outside London.
Notable highlights from the SDI annual results include:

  • The USA was the biggest source of inward investment projects during 2016/17, followed by England and Norway

  • In terms of sectors, technology & advanced engineering (TAE), oil & gas and financial & business services were the biggest contributors

  • 31 projects were classed as Research, Design & Development (RD&D)
Overseas companies which invested in Scotland during 2016/17 include Singapore-based Clinnovate  Chinese mobile games giant Skymoons, US marketing & sales solution provider Televerde, diabetes management leader Dexcom and Chinese power company Red Rock.

The publication of the inward investment results coincided with the announcement that Australian financial services company Computershare has secured £2m of funding from Scottish Enterprise to create 300 jobs at a new technology Centre of Excellence in Edinburgh.

The funding will see the company recruit 300 employees over the next three to four years, at a new city centre location.

Neil Francis, operations director at SDI, said:

“Our strong inward investment results indicate that Scotland’s capabilities in growth sectors such as Financial and Business Services, Technology and Oil and Gas are world-leading and that these sectors remain extremely attractive to international audiences.

“I’m particularly pleased to see investment successes from China and India, as this reflects our increased focus on developing relationships in these markets and our investment in a High Growth Market team based here in Scotland.

“We have a clear focus on winning the right kind of investment for Scotland – which is secured because of our skills base, science and research excellence and our connected business infrastructure.
“The announcement today about Computershare’s investment in Edinburgh is yet more evidence that 

Scotland’s assets are continuing to shine brightly and that our role in securing this type of investment is generating real economic impact.”

SDI worked closely with Computershare to help secure the new investment project.

Source: Scottish Enterprise

Developing the Young Workforce Launched in the Islands, and Extended Nationwide

The islands of Scotland are the latest to benefit from the creation of industry led  groups dedicated to helping young people prepare for and find work.

The Scottish Government has provided more than £1 million to  establish Developing the Young Workforce (DYW) Regional Groups in Orkney, Shetland and the Outer Hebrides.

The launch coincides with the news that funding for the DYW regional groups nationwide will be extended until 2021, and completes the network of 21 groups set up across Scotland as part of the Youth Employment Strategy: Developing the Young Workforce.

More than 3,500 employers and 100 schools have already engaged with the programme since it was launched in 2015.

Minister for Employability and Training Jamie Hepburn, speaking at the launch event in Orkney, said:

“I’m delighted to announce this £1 million investment. Expanding the DYW network, along with our commitment to fund the groups until 2021, provides the certainty and reach to support employers and educators willing to work together for the benefit of young people across Scotland.

“Youth unemployment in Scotland is below the UK average, and is the fourth lowest in the EU. We have also seen a record number of school leavers from our most deprived communities continue their education and training, but we cannot afford to be complacent. That is why I have announced this new investment for the islands, as well as our extended commitment to the national programme.”

Commenting on the funding commitment until 2021, Rob Woodward, Chief Executive of STV and 
Chair of the DYW National Group said: “DYW regional groups across Scotland are starting to deliver improved work experiences and opportunities for young people, it is therefore fitting that the Scottish Government has extended its funding commitment to DYW regional groups until 2021.  This will ensure continuity and certainty for the nationwide network of DYW regional groups and improve the employment prospects for all young people.”   

Stephen Kemp from Orkney Builders, one of the founders of the DYW group in Orkney, added: "It's great to be part of an employer-led initiative that will enable us to proactively engage with young people at a suitably early stage.  We will aim to ensure that students are properly guided in terms of their chosen fields of study, careers advice, and work experience with the aim being to properly prepare them for their chosen career path when they leave school."

Thursday, 15 June 2017

Latest Report on Scotland’s Economy from Chief Economist Dr Gary Gillespie

Scottish Government - The latest assessment of Scotland’s economic performance has been published in Chief Economist Dr Gary Gillespie’s State of the Economy report.

This report outlines recent developments in the global, UK and Scottish economies. The report is published ahead of Wednesday’s debate in the Scottish Parliament ‘Opportunities for Growth’.

It contains new analysis by the Scottish Government, drawing on a range of recently published statistics, to quantify the impact that London has on various UK economic statistics and compares Scotland’s performance to both the UK total and the UK excluding London.

The report highlights:
  • Independent economic growth forecasts remain positive, projecting growth of around 1% in 2017 and 2018
  • The oil and gas sector has continued to weigh on growth in 2016, though there are emerging signs of confidence returning to the sector
  • Scotland’s labour market has remained resilient with unemployment below the UK figure and falling over the past year
  • Scotland continues to be the most attractive part of the UK, outside London, for foreign direct investment (FDI) and has been for the past 5 years
  • Business sentiment has improved, particularly in the manufacturing sector, though Brexit continues to create substantial uncertainty
  • In the five years since 2010, Scotland’s GDP growth is in line with the UK average and Scotland’s GDP per head growth is above the UK average, when London is excluded.
Speaking ahead of the debate, Economy Secretary Keith Brown said:

“This report confirms that the foundations of Scotland’s economy remain strong.
“2016 was a record breaking year for foreign direct investment into Scotland. According to EY, for the second year in a row we have attracted more projects than ever before and Scotland has been the top UK region outside London in every one of the past five years.

“New analysis in the report reveals that in the five years since 2010, Scotland’s GDP growth is in line with the UK average and Scotland’s GDP per head growth is above the UK average, when London is excluded. This reflects the fact that London’s economy, with its concentration of corporate and financial activity, is distinct from all other parts of the UK and has a significant impact on UK performance indicators.

“That said, growth is slower than we would like to see and the UK Government’s stance on Brexit continues to present a huge threat to jobs and prosperity in Scotland.
“We will continue to do all we can to support growth."


Call Out To Businesses! New Scottish Tourism Alliance Research Project Seeks Participants

Tourism & Hospitality: The Growing Cost of Doing Business

STA - Earlier this year, the Scottish Tourism Alliance (STA) announced that we would be conducting a piece of research to gain a clearer insight into the impact of the rising costs within Scotland’s tourism sector. 

We have now commissioned Assenti Research and EKOS Ltd to undertake this research and would be grateful if you could find time in your busy schedule to take part.

Our reason for doing this research now comes from the need to demonstrate to all governments and local authorities that despite positive increases in visitor numbers in recent years there are a number of costs that have steadily increased over the last three years disproportionately to the level of growth. Many have described this as a ‘perfect storm’ which is affecting their financial sustainability.

Over this period these costs include the National Living Wage, Business Rates, licensing, insurance premiums and auto-enrolment pension schemes.

The aim of the project is to demonstrate the reality of how these and other increases are impacting on tourism and hospitality businesses’ potential to invest in the quality of the product and their workforce whilst remaining competitive and most importantly, sustainable.  We can only gain a real understanding and demonstrate the impact if we capture and present the costs as a complete picture, rather than individual examples.

From the research we will establish a baseline to quantify costs across the industry, and once analysed we hope to be able to illustrate how costs have risen over the last five years and provide evidence that further increases will negatively impact our sector’s success.

Our intention is to discuss the findings with Scottish and UK Government Ministers and officials in September and propose ways to mitigate costs, explore a future fiscal framework and influence amendments to policies that will allow Scotland’s tourism industry and wider visitor economy to be more competitive.

View the questionnaire here.

The outcomes of these initial meetings and the final report will be made available to all at the STA Autumn Conference on 3rd October.

We would like to thank French Duncan and Anderson Strathern whose financial and professional support has made it possible to commission this research, and also thank you in advance for taking part in what will undoubtedly be one of the most important tourism projects in recent years - we appreciate your time, effort and commitment to supporting Scotland’s tourism industry.

This is our chance as an industry to influence our future. In order to do this, we need as many businesses as possible to get involved. Please take the opportunity to contribute and encourage others in your areas or sector to do the same.

If you have any questions about the research please contact our Comms team

If you want to know more about how your data will be used, confidentiality or if you have any queries about completion of the questionnaire please contact Sinead Assenti (07740 911 976 or Jane Dixon (

A guide to completing the questionnaire

1.  The questionnaire will take between 30 mins to an hour to complete
2.  You do not need to complete all of the questions at the one time – you can save and come back to it.
3.  You will most likely need to request input from your Business Manager/Finance Department to answer some of the questions (you may wish to forward the questionnaire to them directly to complete)
4.  Some of the questions require you to refer to your accounts for the previous two years and the current financial year – you will therefore need the following to hand from these three years in order to complete the questionnaire:
· Number of staff
· Annual turnover
· Net profit
· Salaries/wages/drawings and dividends where they represent salary costs
· Pension contributions
· Staff transport/accommodation
· Rent/mortgage
· Utilities (Heat, light, water)
· Waste collection
· Insurances
· OTA Commissions
5. The survey asks for contact information to enable Assenti Research to re-contact you should they have any queries about the data you provide. This contact information (including business name) will then be removed from the data and all reporting and output provided to STA will be anonymised.
6. The research is undertaken in accordance with the Market Research Society Code of Conduct. It is therefore the responsibility of Assenti Research to ensure that it is not possible to identify individual businesses from the reporting. Information about turnover, profit etc. will be used collectively to demonstrate the economic impact of rising business costs on the industry and at a sector level.

FAI Analysis of Labour Market Statistics – June 2017

Yesterday saw the release of new data on the performance of Scotland’s labour market.
The headlines were all taken by the fall in the 16+ unemployment rate to a record 4% (it was 4.1% for 16-64 year olds), the lowest since May 2008 and the joint lowest since the data are available (1992, if you’re interested!).
For sure, a low unemployment rate is to be welcomed, but as we have cautioned before, headline labour market statistics can mask a range of underlying challenges.
In this blog we focus on a number of interesting features of yesterday’s data including changes by age and gender; changing employment and in particular changes in self-employment, with a brief comment on earnings and productivity in light of rising inflation.
Here are the headline unemployment rates mentioned earlier, alongside these rates by gender.
In terms of differences by gender, there has been a recent re-convergence between the male and female unemployment rates in Scotland with both these rates now back to levels observed at the start of the financial crisis.
Looking in more detail at unemployment in terms of age, we see the record low in youth (16-24) unemployment of 12%. We can also see that the recent falls in both the unemployment rate, and in unemployment, span the age distribution with the biggest fall being among those 16-24 (generally referred to as ‘youth’ unemployment). Over the period Jan-Dec 2015 the unemployment rate for this group was 14.4%, in Jan-Dec 2016 it was down to 12%.
If unemployment is falling, most people expect that employment is increasing. That needn’t necessarily be the case, indeed much of the past two years has seen a trend of falling unemployment driven by people exiting the labour market (becoming economically inactive) rather than entering employment. If a person is not in a job, and is not actively looking for work and available to start work, this is known as being ‘economically inactive’. There are a number of reasons for economic inactivity from being in full-time education, being ill, looking after family members, etc.
Between 2012 and 2015 there was robust employment growth in Scotland. 2016 saw a period of falling employment and more recently, we have seen some increase in the number of people in employment, as the chart below illustrates.
These trends are also broadly reflected in changes in the employment rate for men and women in Scotland as the following charts illustrate.
In terms of changes by gender, the female employment rate is now above it’s pre-financial crisis peak, but this is not the case for men. More recently, as the chart below shows, we  have seen the female employment rate dip slightly, with the male employment rate increasing slightly.
One of the features of employment growth over the past few months in Scotland has been the rise in self-employment. The number of people in Scotland who are self-employed is now at a record high.
Zooming in to the past few years we can see that the rapid growth in employment from 2012 to 2015 was driven by growth in employees, while the more recent growth in employment comes at a time of falling numbers of employees and increases in self-employment. All of the growth in employment in the year to Feb-Apr 2017 is accounted for by growth in self-employment.
In terms of gender split, post the financial crisis of 2007-08 Scotland has generally had more self-employed women than men, however in the past few quarters we have seen a significant rise in the number of men who are self-employed. It is clear that the recent growth in employment, i.e. since mid 2016, seems to be being driven by increases in male self-employment.
Sometimes when thinking about self-employment people have in mind someone starting businesses and creating jobs. However, partly as a result of technological innovation, the self employed are a much more diverse group engaged in all manner of different types of self-employment. It includes people seeking more flexibility in their work pattern and opting to move into semi-retirement with some occasional work on the side, through to people freelancing, working for companies as courier drivers, taxi drivers etc. Self-employment is now a feature of the Scottish labour market that cuts across industry sectors and across different skill levels.
The concern that exists about this growth in self-employment relates to the type of self employment that people are entering. People becoming self employed to realise new opportunities, gain additional flexibility in their work pattern or in some other way improve their quality of life is to be welcomed. However, a number of jobs which might be classed as self-employment are associated with less stable and rewarding employment with fewer employment protections. This is obviously a concern.
More work needs to be done to understand the characteristics of this surge in male self-employment (e.g. by skill level and age), and to understand the types of self-employment being entered into.
Earnings and productivity
With rising inflation there is a real concern about the muted wage growth that we have seen in recent times. The most recent estimates of UK inflation hit 2.9%. Wage growth in Scotland, and indeed in the UK, has been muted for some time now. As we highlighted in our Scottish Labour Market trends report recently, median wage growth has averaged around 1.5% in recent years. Without improvements in wage growth, household’s budgets will soon be under additional pressure.
Central to improvements in pay is improvements in productivity- how much can be produced for each hour of work. At an economy wide level, this is calculated as real GDP per hour worked.
We discussed the Scottish productivity statistics in more detail in a blog post a few months ago, but a couple of things are worth emphasising.
Firstly, Scotland has closed the productivity gap on the UK as a whole in recent years. Unfortunately, this is not a reflection of improvements in Scottish productivity so much as a reflection of how dire UK productivity performance has been.
Secondly, recent productivity improvements in Scotland have been underpinned by falling numbers of hours worked rather than improvements in GDP.
Thirdly, with very weak economic growth in Scotland (recall the economy contracted by 0.2% in the final quarter of 2016), Scottish productivity is unlikely to improve anytime soon (unless there is a further fall in hours worked).
Recent falls in unemployment, in particular youth unemployment are to be welcomed. The 16+ unemployment rate is now at its lowest rate since May 2008, and the youth unemployment rate is around its lowest recorded rate.
However, the substantial rises in economic inactivity seen through 2016 is a continuing worry, with little sign of these increases being reversed, and indeed further increases in inactivity being recorded.
Employment has grown further this quarter, reaching 2.6 million people in employment in Scotland, and exceeds its level prior to the financial crisis of 2007-08. While the growth in employment in the period 2012 to 2015 was largely supported by a growth in employee jobs, the subsequent growth in employment is driven entirely by increases in self-employment, particularly among men.
More research is needed to understand the types of self-employment that are being entered into, to better understand whether this change reflects improvements in the labour market outcomes of those entering self-employment.

Source: Fraser of Allander Institute

Tuesday, 13 June 2017

Job Opportunity - Senior Development Manager with Opportunity North East (ONE)

The Organisation

Opportunity North East (ONE) is the private sector’s response to the long-term economic challenges facing North East Scotland. ONE is industry-led, privately funded, region-specific and focuses on action to achieve growth and safeguard or create employment, which gives it a unique ability to add value to economic development activity in North East Scotland. With an initial investment commitment of £25 million over five years from the Wood Foundation, ONE catalyses partnership working and co-investment with the aim of leveraging match funding from the private and public sectors to deliver transformational projects in the key sectors of Oil & Gas, Food, Drink & Agriculture, Life Sciences, Tourism and Digital.

The Role

The Senior Development Manager will work with and support the Chief Executive in developing and delivering transformational projects and programmes. Working across a wide and varied remit, this is a critically important appointment that can make a real impact on the economic development of the region. Based in Aberdeen, this role will operate across the region and beyond, working with multiple stakeholders, local and national governments, and across the entire value and supply chain in the key sectors. The Senior Development Manager will be a key member of the ONE leadership team. The role will require the successful candidate to develop and implement an ambitious programme of activity that will deliver the Renaissance Vision.

The Candidate

ONE is looking for an individual with considerable experience of helping design strategy and translating it into action, a sound knowledge of economic and project development, and a track record of delivery within a private, public or consultancy environment. With a proven track record of turning strategy into action and developing project solutions, the successful candidate will have the ability to influence and build strong relationships with stakeholders at senior levels across the public and private sector.

If you would like to discuss this role in further detail, please contact Yvonne McPherson on + 44 (0)1224 218969.

Job Opportunity - Development Officer with Falkland Islands Development Corporation

FIDC has a vacancy for the post of Development Officer.

We are looking for a motivated individual with an entrepreneurial background to help us support local companies start and grow their businesses. The successful candidate will be supporting our Development Manager with the provision of sound business advice, the appraisal of loan and grant applications and the delivery of projects that promote economic development in the Islands.

Candidates will need to hold either a business related degree or equivalent qualifications, with a solid track record of 3 to 5 years’ experience in a similar area of work, including experience in loan appraisals, project management and financial analysis.

This is a full time position with a starting salary from:  £29,000.00 per annum + for overseas’ applicants a 25% gratuity on top, flights and relocation grants.

For more details on the Development Officers role please download the full Job Description by   pdfclicking here.(162 KB)

For application form please   documentclick here. (184 KB)

Applications should be submitted to the Personal Assistant for the Managing Director, Sue Faria on or posted to FIDC, no later than 16:30 on 29th of June 2017.

For further details of the role please contact Anne Wagner-Gras on 27211.

Scottish Business Output Hits Three-Month High while Confidence in North Sea Industry Rises

BBC News - Scotland's private sector grew last month, with output reaching the highest level since February, according to a new report.

Businesses put the growth down to expansion in the services sector, while manufacturing production also remained strong.

Meanwhile, cost pressures eased marginally, remaining steep overall.

The findings are contained in the Bank of Scotland's regional purchasing managers' index (PMI) for May.

However, growth remained below that of the UK as a whole.

The PMI for Scotland stood at 51.5 last month, up from March's four-month low of 50.1. It was 50.6 in April.

'Unexpected upturn'

The index, which produces a single-figure measure of the month-on-month change in combined manufacturing and services output, indicates a rise in business confidence towards the next 12 months.

The firms surveyed in the report attributed confidence to "an unexpected economic upturn".
Fraser Sime, of Bank of Scotland, said: "Latest PMI data signalled the Scottish private sector moving up a gear, as growth reached a three-month high."

He added: "The positive news was driven by rises in combined output and new orders, fuelled by solid underlying demand.

"Also, easing price pressures added to the overall improvement in business conditions. That said, Scottish private sector growth remains below that of the UK as a whole."

Economy Secretary Keith Brown said: "The latest Bank of Scotland PMI figures show a welcome rebound in Scottish service sector business activity in May while manufacturing output remains strong and continues to improve.

"These figures show the Scottish economy remains resilient and we will continue to do all we can to support growth."

Confidence 'rises' in North Sea oil and gas sector

Confidence is rising among North Sea oil and gas firms but many are still finding trading difficult, a survey has suggested.

It found 38% of contractors were more optimistic about their activities on the UK Continental Shelf in the current year.

This compared with just 10% who were less optimistic.

The figures were well up on "historic lows" six months ago when only 12% were more confident and 47% less confident.

However, 52% reported no change in their outlook.

Aberdeen and Grampian Chamber of Commerce (AGCC), which commissioned the survey, said that indicated there were still "significant challenges" in the marketplace.

On a positive note, 52% of contractors and operators thought the sector had already reached the bottom of the downturn.

A further 26% predicted it would do so within the next year.

'Positive direction'

The survey also suggested that investment was "moving in a positive direction". More contractors (26%) said they expected to increase investment than reduce it (19%) while 36% forecast no change over the next two years.

Operators and licensees, on balance, also forecast a rise.

However, AGCC said the increases were "limited to certain areas and again cannot be seen consistently across all parts of the industry".

While more firms reported working at or above optimum levels, operators and licensees reported a 2.5% decline in their workforce in the 12 months to March 2017. Contractors reported a 6% decline.

On sector-specific activity, the majority (81%) of contractors said they expected to be involved in decommissioning in the next three to five years.

Just over half of respondents (54%) reported a similar interest in renewables.

Just under 70% of firms said they expected to be involved in unconventional oil and gas activity in the UK in the medium term, with 65% expecting to be involved outside the UK.

James Bream, research and policy director at AGCC, said: "We're seeing some signs of recovery for the industry and the global outlook is certainly more positive than it was six months ago but it is clear that most companies are still suffering.

"We are hopefully stepping into a more prosperous period in due course but that is not upon us for now.

"It seems clear that many believe that we won't return to previous levels of activity and that perhaps we shouldn't call this a downturn. This isn't a 'new norm', it is just normal."

The 26th AGCC oil and gas survey of 100 firms was conducted by the Fraser of Allander Institute in April.

Sources: BBC News & BBC News

Monday, 5 June 2017

Event Report on 'Workplace Innovation in Scotland' Now Available

A report from last week's EDAS / SUII event on 'Workplace Innovation in Scotland', including presentations for download, is now available. 

Please read here:

FAI: is Scotland on the Brink of Recession?

Fraser of Allander Institute - Official data published in April showed that the Scottish economy contracted in the final 3-months of 2016. That means that we’re just one data release away from ‘technical recession’ – that is, two consecutive quarters of falling GDP.
In this blog, we review the most up to date official and unofficial data to get a sense of how likely it is that we will slip into recession when the figures for Q1 2017 are published in July.
On balance, we think that it is going to be a close run thing.
Recap – Q4 2016
The Scottish economy contracted by 0.2% in the final quarter of 2016.
Source: Scottish Government
The poor figures were pretty comprehensive – both production and construction output fell, whilst the all-important services sector remained flat.
Back in July 2016, we argued that the outlook for the next couple of years was fragile and periods of negative growth were highly possible.
Indeed, between Q4 2015 and Q4 2016, the Scottish economy did not grow at all, compared to growth of 1.9% in the UK.
Economic growth in Scotland has lagged the UK for 2 years now.
Source: Scottish Government
A key driver for this divergence has undoubtedly been the downturn in the North Sea. Whilst North Sea output doesn’t actually enter the Scottish figures (instead it covers the onshore economy only), the supply chain that supports the oil and gas industry does.
But as we discussed last month – Strathclyde Engage Week – there is increasing evidence that this might only be part of the explanation.
For example, whilst engineering firms and makers of specialist machinery and oil and gas support services have been badly hit, every single one of Scotland’s principal manufacturing sectors – from food and drink, textiles, computer and electrical products, through to transport equipment, contracted during 2016.
Services – around 75% of our economy – grew nearly twice as fast in the UK as a whole as they did in Scotland.
It seems unlikely that this is all tied to the North Sea.
So what is the more recent data telling us?
For the official figures for Q1 2017, we will have to wait until early July.
But there’s quite a lot of information out there already that can give us clues to how the economy has performed during the first months of 2017.
Business Surveys
The FAI-Royal Bank of Scotland Business Monitor for Q1 2017 showed an increase in the net balance of firms reporting both repeat business and new business volumes were improving.
Indeed, Q1 2017 was the first time since mid-2015 that both measures were in positive territory. That being said, the net balance figures of below +10 are still low by historical standards.
Source: FAI/RBS Business Monitor (Q1 2017)
The Lloyds Bank Regional Purchasing Managers Index (PMI) for Scotland – undertaken by IHS Markit – has continued to remain perilously close to the cut-off point of 50 (where >50 marks a balance of firms reporting an expansion in their activities whilst a value of <50 50.1="" 51.2="" 51.7="" 53.8="" 54.9="" 55.2="" a="" against="" and="" compare="" contraction="" feb="" figures="" in="" jan="" march="" marks="" of="" p="" respectively.="" scottish="" the="" uk-wide="">
As the chart highlights, this doesn’t seem to be just a ‘London effect’ dominating the UK figures.
Source: Lloyds Bank Regional Purchasing Managers Index (PMI) for Scotland, IHS Markit
Labour Market
The Scottish labour market continues to hold up much better – at least at first glance.
Unemployment and employment are back to near the levels witnessed just before the financial crisis.
Over the first quarter of 2017, unemployment fell by 14,000 whilst employment rose by 5,000.
As we highlighted here, much of the improvement in the unemployment rate in recent months had been driven, not by people finding work but, by people leaving the labour market entirely. This trend has eased, albeit with inactivity rates in Scotland now higher than the UK as a whole.
Source: Labour Force Survey, ONS
Retail and consumer confidence
But consumer confidence remains weak – not just in Scotland, but across the UK as higher inflation begins to bite.
Source: GfK Consumer Confidence Index
It’s therefore unsurprising that the official retail sales figures for Scotland – one early component of the official Scottish GDP series – declined again in the first three months of 2017 pushing that sector into recession (for the first time since 2012).
Source: Scottish Retail Sales Index, Scottish Government
The performance of the wider UK economy has an important bearing on Scottish growth. Around £11.5bn of Scottish exports are sold to rUK each quarter.
All things remaining equal, a healthy UK economy is good news for the Scottish economy.
The UK had grown relatively strongly through most of 2016, confounding most predictions. But the growth was driven almost entirely by rapid increases in consumer spending. This couldn’t last – particularly with rising inflation.
UK growth in the first three months of 2017 was just 0.2%. This suggests that a source of buoyancy over the last year, may provide less of a boost this time around.
On balance, it’s difficult to conclude anything other than the Scottish economy remains in a fragile position.
Whether or not it will be confirmed in July that we have entered recession is in the balance.
Given the way in which economies operate (and the statistical data is compiled), some form of bounce back is likely at some point. In the short-term, whilst not impossible, the balance of evidence suggest that this is unlikely.
But whatever the next set of GDP data tell us, what is key is the trend over the long-term.
Talk back in 2008 was for the potential of a lost decade of growth. Since 2006, output per head in Scotland has increased by just over 1% (that’s not an average growth rate, that’s the total increase).
With the new fiscal powers coming on stream this year, getting the economy growing again – and on a sustainable basis – will be vital not just for jobs and prosperity, but also our public services.

Source: Fraser of Allander Institute