Transcript economic outlook for Scotland - Glasgow Caledonian University

Scottish Economy
Glasgow Caledonian University.
Gary Gillespie
3rd March 2017
Part 1 -Overview of Economic Conditions:
Key Points:
• The economy has remained resilient despite more challenging internal and
external conditions over the last 2 years.
• Economic Growth has slowed below trend and relative to the UK reflecting specific
sectoral issues in Scotland.
• The aggregate labour market has remained resilient with high levels of
employment and falling unemployment though against a backdrop of a changing
labour market (increased churn and a changing composition).
• The EU Exit vote has impacted on economic conditions (Sterling, Monetary &
Fiscal policy) including expectations and uncertainty – the latter are expected to
impact negatively on growth (via investment and inflation) in 2017 and 2018.
• Outturn growth for Scotland for 2016 is forecast at around 1 per cent with a
broadly similar outlook for 2017. (UK growth 2016 (1.8%) is forecast at 1.4 % in
2017.)
• UK growth contingent on expectations and the impact of changing terms of trade
relating to EU exit – potential impacts expected to materialise through 2017.
• Scotland not immune to these impacts though there are signs of a potential easing
of some of the structural/cyclical issues that have impacted Scotland (Oil and Gas
etc.).
Scottish Output and Labour Market
Performance.
Output
Labour Market
Sectoral Performance.
Levels of Output
Quarterly Growth
Key Driver of Scotland’s Performance –
Oil and Gas Sector.
PACE Support (Apr-Oct 2016).
By Sector
By Local Authority
Employers
Individuals
Mining & Quarrying
50
3296
Manufacturing
54
2734
Wholesale & Retail
58
1426
Construction
12
1026
Public Admin, Defence Education & Health
29
715
Accommodation & Food Services
13
244
Admin & Support Services
5
217
Finance & Insurance
7
169
Information & Communication
10
149
Professional, Scientific & Technical
4
89
Electricity, Gas, Steam & Air Con
4
51
Transportation & Storage
4
51
Other Services
4
26
Water Supply and Sewerage Waste
1
26
Arts, Entertainment & Recreation
3
16
Real Estate
1
7
259
10242
Total
Aberdeen City
Fife
Glasgow City
City of Edinburgh
West Lothian
Inverclyde
South Lanarkshire
Dundee City
West Dunbartonshire
Aberdeenshire
Falkirk
Dumfries & Galloway
South Ayrshire
North Lanarkshire
Angus
Perth & Kinross
East Ayrshire
North Ayrshire
Highland
Scottish Borders
Stirling
Midlothian
Argyll & Bute
Moray
Shetland Islands
Na h-Eileanan Siar
East Dunbartonshire
East Renfrewshire
Clackmannanshire
East Lothian
Orkney Islands
Renfrewshire
No LA Associated
Employers
Individuals
52
16
30
11
9
6
14
5
4
14
5
8
9
11
7
2
7
4
8
5
3
2
3
2
3
3
1
1
2
12
3377
1042
768
615
612
454
389
345
326
303
301
246
190
178
161
148
138
128
82
80
80
76
55
14
13
11
10
6
5
89
Decomposition of Annual Growth Rates.
Changes in the types of jobs.
Employment Growth by Occupational Skill Level, Scotland
Cumulative increase in employment since 2004
Cumulative Increase (thousands)
200
150
100
Low Skill
50
Med-Low Skill
Med-High Skill
High Skill
0
Total
-50
-100
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: Annual Population Survey, Jan-Dec, ONS
Economic Trends
Global Trends
• Low oil prices.
• Weak global growth.
• Overcapacity in some industries (i.e. steel).
• Economic imbalances remain.
• Economic & political uncertainty.
Scottish Trends
• Oil price fall has impacted North Sea and wider supply chain.
• Services growth has picked up (boosted by lower Energy prices).
• Sharp Sterling depreciation impacting on sectors and feeding through to prices.
Part 2 – Brexit and the Nature of the Shock.
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Political vote/change triggering an economic event.
Raised the spectre of ‘Political Risk’ within UK (contrary to previous
wisdom/expectations).
Different to financial crisis…..this is largely UK specific.
Immediate channel is through uncertainty……longer term trade, investment and
public finances.
Fall in Sterling reflects market view but also potentially helps with any adjustment.
Quantifying impacts is difficult……expectations are influencing activity across a
range of areas.
Immediate challenge is in addressing expectations – economic response to date
largely on Monetary side (Bank of England) relating to financial stability – also
looser Fiscal stance following Autumn Statement
However, political framing important for informing immediate and longer term
expectations.
Brexit – Summary of Short Term Impacts.
Economic Shock Concerns
What we know so far..
 Reduced consumer sentiment – uncertainty over the
economic outlook leading to consumers reducing or
deferring spending. (Not manifested yet).
Financial Markets
• Value of Sterling - 18% lower against the dollar and 12% against
the euro compared to pre-referendum levels.
• FTSE 100 / 250 - following an immediate downward shock, have
fully recovered to above pre-referendum levels.
Scottish Growth Forecasts
• Fraser of Allander Institute - growth revised down for 2016 to
1.0% (1.4% pre-ref), and for 2017 to 1.1% (1.9% pre-ref).
• ITEM Club – growth revised down for 2016 to 0.7% (1.8% pre-ref),
and for 2017 to 0.4% (1.8% pre-ref).
Summary of Scottish Business Surveys
• Output and employment indicators have remained broadly stable
in the second half of 2016, though business confidence remains
finely balanced with the lower value of Sterling boosting export
orders but raising input costs.
Consumer Sentiment
• Scottish Consumer Sentiment Index – Sentiment turned negative
for the first time in Q3 2016.
Stimulus Packages
• Bank of England – Liquidity support (£250bn), reduction of Bank
Rate to 0.25%, additional £70bn QE.
• Scottish Government – acceleration of £100m capital expenditure
and business information support service.
• SG Growth Scheme – Programme for Government
 Delayed investment – uncertainty on Britain’s future
relationship with the EU delaying businesses investment and
recruitment decisions.
 Rising costs – the fall in the value of Sterling will create
inflation via imports. However, British exports will be
relatively cheaper. (Inflation rising)
 Slower EU growth – uncertainty and lower
trade/investment exacerbating existing economic challenges
for fragile EU economies. May act as a drag on growth in the
EU as a whole, which remains Scotland and the UK’s largest
trading partner.
 Deterioration in the public finances - the above channels
feed through to a slowdown in UK economic activity,
reducing tax revenues and having a detrimental impact on
the UK public finances.
Scottish Consumer Sentiment Index.
Composite Index
Part 3 – Impact on Competitiveness/Terms of Trade.
•
The Brexit vote and implications essentially represent a potential Terms of Trade
shock to the UK and Scotland.
•
As a small open economy, trade (and the flow of capital and labour) are important
to Scotland.
•
The many uncertainties surrounding Brexit, such as the UK and Scotland’s future
relationship with the EU, make it difficult to estimate future changes.
•
Most analysis to date had focussed on 3 Scenarios – EEA, FTA & WTO relating to
trade (4 Freedoms) however there are potentially wider social and economic
implications.
•
Scottish Government published Scotland’s Place in Europe (December 2016).
•
UK Government set out their position – January 2016 – 12 Principles for
Negotiation.
Existing arrangements…….
Europe’s Trade, Immigration and Currency Agreements
Brexit – Implications on Trade and Regulatory
arrangements.
Share of total
UK trade
covered by
trade
agreements
Chart Source: VOX CEPR’s Policy Portal
Data Source: ONS and EC DG Trade.
Changing Structure of the Scottish Economy – Output
Changing Structure of the Scottish Economy – Exports
Scotland’s International Trade:
Imports and Exports as a Percentage of GDP (2014).
Source: OECD and Quarterly National Accounts Scotland
Luxembourg not included
Scotland’s International Trade:
International and RUK exports by Sector (2014)
Source: Export Statistics Scotland
Overview/Summary.
•
The Scottish economy has remained resilient despite the external challenges of 2015
(specifically oil and gas) continuing into 2016. Growth has remained below trend but resillient
alongside the labour market.
•
The EU referendum vote has materially shifted economic sentiment and expectations which has
led to changes in economic conditions – main risks relate to potential changes in future market
access for goods, services, capital and labour.
•
Countervailing Forces – Sterling depreciation, interest rate cuts and QE are boosting immediate
economic activity and offset negative sentiment and uncertainty. Consumptions remains strong
but may be impacted by future price rises. UK growth of around 1.9 per cent (Scotland 1.1%)
expected for 2016 but growth projected to fall by around half in 2017 (1.0%).
•
Forward Look – The process of Article 50, negotiations and external events make the future
outlook more uncertain at this time.
•
The economic outlook for Scotland is influenced by the same factors but with the additional
challenges facing the Oil and Gas sector.
Links to publications.
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Scotland’s Economic Strategy:
http://www.gov.scot/Topics/Economy/EconomicStrategy
•
Scotland’s Labour Market Strategy:
http://www.gov.scot/Publications/2016/08/2505
•
State of the Economy Report:
http://www.gov.scot/Topics/Economy/state-economy/latestSofE
•
Scottish Economy Statistics (e.g. GDP, labour market, exports):
http://www.gov.scot/Topics/Economy/Statistics
•
Scotland’s Place in Europe:
http://www.gov.scot/Publications/2016/12/9234
UK Prime Minister’s Speech 17/01/17:
https://www.gov.uk/government/speeches/the-governments-negotiating-objectivesfor-exiting-the-eu-pm-speech