State of the Scottish Economy

Richard Murray

Office of the Chief Economic Adviser

26th March 2010

Synchronised Global Downturn

Percentage Change Over the Year

GDP Growth for Advanced Economies

France UK Japan US

Source: Reuters EcoWin

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

Perc

ent

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

Output Remains Below Pre-Crisis Levels

Quarterly GDP Index (Q2 2008=100)

86

88

90

92

94

96

98

100

102

104

Q1-2005 Q3-2005 Q1-2006 Q3-2006 Q1-2007 Q3-2007 Q1-2008 Q3-2008 Q1-2009 Q3-2009

Ind

ex

Germany Japan UK US

Start of Synchronised

Downturn

Source: OECD

Scotland Remains in RecessionScottish & UK GDP Growth

(Quarter-on-Quarter)

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2007Q1

2007Q2

2007Q3

2007Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

Pe

rce

nt

Scotland UK

Broad-Based Decline in OutputPerformance of Scottish Sectors During Recession

-14

-12

-10

-8

-6

-4

-2

0

Total Production Construction Services

Cu

mu

lati

ve C

han

ge

in G

DP

Scottish Unemployment Continues to Rise

Scottish & UK Unemployment Rate

0

1

2

3

4

5

6

7

8

9

Pe

rce

nt

Scotland UK

Flexibility in UK Labour MarketChange in UK Average Hours and Earnings

-4

-2

0

2

4

6

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2006 2007 2008 2009% C

ha

ng

e o

n P

revio

us

Ye

ar

Average Hours Average Earnings (including bonuses)

Decline in UK Net Lending

Annual Growth

UK Net Lending to Business

M4 Lending, Private non-financial corporations

M4 Lending, Unincorporated businesses and non-profit making institutions

Source: Reuters EcoWin

98 99 00 01 02 03 04 05 06 07 08 09

Perc

ent

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.0

Future Prospects

Scotland Close to Emerging from Recession

Markit PMI Scotland Survey of Private Sector Output

35

40

45

50

55

60

Aug-05

Nov-05

Feb-06

May-06

Aug-06

Nov-06

Feb-07

May-07

Aug-07

Nov-07

Feb-08

May-08

Aug-08

Nov-08

Feb-09

May-09

Aug-09

Nov-09

Feb-10

Total Services Manufacturing

Modest Recovery Forecast for Scotland

Latest Independent Forecasts for Scottish GDP Growth

-6

-5

-4

-3

-2

-1

0

1

2

3

4

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GD

P G

row

th

Forecast

Official GDP FAI (Feb 10)

Experian (Nov 09)

Item Club (Nov 09)

Cambridge (Mar 10)

Treasury’s Latest ForecastsUK GDP Forecasts

-6

-4

-2

0

2

4

2009 2010 2011 2012

% C

ha

ng

e o

n P

rev

iou

s Y

ea

r

Budget 2010 Average Independent Forecast

Risks Facing the Recovery

Withdrawal of fiscal stimulus measures

Fiscal consolidation

Further adjustment required in financial sector

Concluding Thoughts

Scotland close to emerging from recession

Unemployment continues to rise

Risks from the global economy & fiscal consolidation

Modest growth predicted in 2010

Impact of the recession on young people

Susan Anton

Lifelong Learning Analytical Services

27 March 2010

Claimant Count Unemployment 18-24 Year Olds

ILO Youth Unemployment 16-24 Year Olds

0

20,000

40,000

60,000

80,000

100,000

16-24 25-49 50+

ILO

Une

mpl

oym

ent L

evel

s

Oct-Dec 2008 Oct-Dec 2009

0.0%

5.0%

10.0%

15.0%

20.0%

16-24 25-49 50+

ILO

Une

mpl

oym

ent R

ate

(%)

Oct-Dec 2008 Oct-Dec 2009

ILO Youth Unemployment 16-24 Year Olds

• Scotland had highest percentage point increase over year in 16-24 ILO rate

• However, it still retains second lowest youth ILO rate in UK

0.0

5.0

10.0

15.0

20.0

25.0

NorthernIreland

Scotland UK England Wales

Une

mpl

oym

ent R

ate

16-2

4 Ye

ar O

lds

(%)

Oct-Dec 08 Oct-Dec 09

• Map indicates areas which have seen the largest increase in their share of additional unemployment since February 2008 for the 18-24 age group

• Central belt and the Borders seen the largest increase

Industrial breakdown of workers in Scotland

Industry16 to 21 year

olds in FT Employment

All Workers

Difference

Agriculture and Fishing 2.8% 2.1% 0.8%

Energy & Water 3.2% 3.0% 0.2%

Manufacturing 11.3% 10.0% 1.3%

Construction 17.1% 8.3% 8.8%

Distribution, Hotels & Restaurants 28.4% 18.9% 9.6%

Transport & Communication 3.8% 5.9% -2.0%

Banking, Finance & Insurance etc 12.5% 14.3% -1.8%

Public Administration, Education & Health 14.0% 31.8% -17.8%

Other Services 6.8% 5.8% 1.0%

Source: Annual Population Survey (July 2008 to June 2009)

Impact of Economic Situation Education at a Glance 2009, published by the OECD says that across

the 30 member countries, the economic crisis may -

‘increase the incentives for individuals to invest in Education, as worsening Labour Market prospects lower the opportunity

costs of Education, such as earnings foregone whilst studying’

Source: EAG 2009

http://www.oecd.org/document/24/0,3343,en_2649_39263238_43586328_1_1_1_1,00.html

Timing of the Statistics

• THE PAST – 2008/09 ACADEMIC YEAR

• What do the latest official statistics say?

• In 2008/09 there were an additional 3,240 Scots entering First Degree HE in Scotland (up 3% on 2007/08) to 101,905

• The amount of total ‘activity’ in Scotland’s Colleges increased slightly (by 0.6 per cent) on the amount seen during the previous year

• 2008/09 Academic Year coincides with start of recession

• However given lead-in times to participate in HE and FE, the impact of the downturn will be more limited (See Chart 1)

Scotland's Unemployment Rate

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Feb-Apr2007

May-Jul2007

Aug-Oct2007

Nov-Jan2008

Feb-Apr2008

May-Jul2008

Aug-Oct2008

Nov-Jan2009

Feb-Apr2009

May-Jul2009

Aug-Oct2009

Nov-Jan2010

Start of 2008/09 Academic Year (Similar to when the

recession started)

Source: Labour Force Survey (LFS)

Start of 2009/10

Academic Year

Chart 1: Scotland’s Official Unemployment Rate since 2007

Timing of the Statistics

• THE PRESENT – 2009/10 ACADEMIC YEAR

• What do the latest official statistics say? – We wont know for sure until January 2011! But we do know..

• 2008/09 School Leavers in Scotland displayed markedly different behaviour from the previous year (See Chart 2). Staying-on rates in School also increased

• An extra 5.6% of Scots applied for and accepted a place to do HE in the United Kingdom in 2009/10 (the vast majority will be in Scotland) - UCAS

Chart 2: School Leaver Destinations, 2002/03 to 2008/09

15

20

25

30

35

40

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

Employment

Higher Education

Further Education

2009/10 Academic Year

Source: School Leaver Destination Statistics 2008/09

Timing of the Statistics

• THE FUTURE – 2010/11 ACADEMIC YEAR

• Will depend in large part on how the economic and Labour Market situation continues to develop over the coming months.

• There is an expectation of greater numbers of people leaving School in the Summer

• UCAS suggest large increases in the number of people applying to do Higher Education. Their first release, in February 2009, reported a 31% increase in Scots applicants. When you remove those additional applications due to procedural changes, the increase is 21%. This is similar to the UK as a whole.