Due to the impact of coronavirus and the related lockdown, the latest official figures for Scottish Gross Domestic Product (GDP) are likely to be the last properly comparable ones available for some time to come.
As we enter this period of thick statistical fog, now seems like a good time to reflect back on the performance of the Scottish economy over the past twenty years. Highlighted below are a few of the key findings of the latest Scottish Trends report.
Over the full time period available, 1998 to 2019, the latest data shows that Scottish growth slowed noticeably post the 2008-09 recession and that, even after adjusting for population change, Scotland has grown more slowly than the UK. Furthermore, this slower relative growth has worsened post 2008.
The fastest growth sectors of the Scottish economy were Information & Communications and Business services. However, these were also the sectors where the biggest, negative, growth gaps existed between Scotland and the UK.
In real terms (i.e. after adjusting for inflation), and adjusted for population change, the Scottish Hospitality sector (Accommodation & Catering) recorded no growth in output over the past two decades. In contrast, at the UK level the sector grew by around 35%;
The Health and Social Work sector in Scotland has consistently grown more slowly than is seen for the UK, leading to an increase in output (e.g. number of operations) of less than half the 60% experienced at the UK level.
In the past, such underperformance idiosyncrasies may have seemed academic to many people. However, now that the Scottish Budget is highly dependent on the Scottish growth rate, via Income Tax, then such failures have tangible consequences. So, for example, it becomes much more pressing to understand why Business services have stopped growing in the past 5 years in Scotland, but continue to surge ahead at the UK level;
Some of the more recent underperformance in private sector services is likely to be down to reduced North Sea related activity. If so then this is both an economic and fiscal worry as the North Sea again enters a period of lower activity due to the collapse in the oil price.
Even before the current pandemic, growing pressures from an ageing population meant that annual rises in Health and Social Work capacity were vital. However, output has not grown for 7 years in Scotland and over the past 20 years has been consistently lower than seen for the UK.
Given the economic issues that were already apparent pre the pandemic then a better understanding of the past is also a crucial step in helping us negotiate the future. In particular:
- The long term dismal performance of the Hospitality sector in Scotland, and its implications for tourism strategy;
- The lack of growth in Business services of late, which is normally a sector that drives the economy forward;
- The implications of another downturn in North Sea fortunes on the onshore economy;
- The long term poor growth seen in the Health and Social Work sector, compared to the UK, and lack of any growth in recent years. This is especially worrying in a sector that will be facing even higher demand pressures going forward due to COVID-19 and demographic
While such sectoral growth differences may have been dismissed in the past as largely of academic interest they are not so easy to ignore now. For example, a continuing failure for the Business sector to grow will impact directly on the Scottish public funding, due to Income Tax being largely devolved and a significant contributor to the Scottish Budget.
Overall, a combination of : the pandemic lockdown; the existing post financial crisis slowdown, in both absolute and relative (to the UK) terms; and another looming North Sea slowdown, means that Scotland’s economic prospects are far from bright.
Better understanding the root causes of some of the worrying past trends may put us on a firmer footing to improve the growth potential of the Scottish economy as we tentatively move towards a post pandemic economy.
Further Reading: Analysis and implications of Scottish economic growth patterns over the past two decades, Scottish Trends, May 28; Slow and not so sure, Fraser of Allander Institute, May 29; Implications of coronavirus crisis for Scottish economy, FAI podcast, May 15; Scotland’s labour market, Scottish Government, May 27; State of the economy, Scottish Government, February 2020