Scottish economy contracts 0.2 per cent

Change in gross domestic product (GDP) is the main indicator of economic growth in Scotland.

The latest Gross Domestic Product release, covering the period October to December 2016, shows that total output in the economy contracted by 0.2 per cent compared to the previous three months.

On an annual basis, compared to the fourth quarter of 2015, the output of the Scottish economy was flat (0.0 per cent change).

During the fourth quarter of 2016 output in the services industry in Scotland was flat (0.0 per cent change), while production contracted by 0.9 per cent and construction contracted by 0.8 per cent.

Over the calendar year (i.e. 2016 vs 2015), the Scottish economy grew by 0.4 per cent.

Industries which represent a large proportion of the economy or which have big quarterly changes have the most impact on overall GDP. The industry which has had the greatest contribution to change in the output of the Scottish economy in the fourth quarter of 2016 is Production (which accounted for 0.2 percentage points of contraction).

Warning that the “Scotland’s economy faces continued headwinds”, Finance Secretary Derek Mackay said: “Before the EU referendum, the UK Government told us Brexit will make us ‘permanently poorer’. What is now quite clear is the economic reality of the Brexit vote. We have already seen significantly lower consumer confidence in Scotland since the vote last summer. Now we see that feeding through into our growth figures and all of this is before the UK actually leaves the EU.

“It is also noteworthy that although these figures do not include offshore oil and gas production, the downturn continues to impact on the wider economy through the supply chain just as it has in Norway and Canada. We will continue to support the sector by investing in innovation, our £5 million Decommissioning Challenge Fund and the Energy Jobs Taskforce, among other initiatives.

However, Scottish Conservative leaders said the figures showed Scotland was “halfway to recession under the SNP”.

Scottish Conservative shadow finance secretary Murdo Fraser said: “These are deeply worrying figures which show that Scotland under the SNP is now on the brink of a recession.

“Nicola Sturgeon’s Scottish Government must take responsibility for this mess.

“She has made Scotland the highest-taxed part of the UK and created more instability and uncertainty with her threat of a second referendum.

“Now we see the real-life impact of her mismanagement.

“These figures also smash the SNP’s claim that Brexit is to blame for a slowdown.

“If that was the case, why is the rest of the UK powering ahead, while Scotland comes to a standstill?”

Liz Cameron, chief executive of Scottish Chambers of Commerce, said: “The news that Scotland’s economy is contracting at a time when the overall UK economy is growing healthily must ring alarm bells for both the Scottish and UK Governments. While Scotland’s growth has been sluggish since the fall in oil prices in 2015, the evidence now shows that no sector in the Scottish economy is experiencing growth, with production and constructing falling and our service sector flatlining.

“This news must now bring an urgent change in policy from the Scottish Government in particular. The Scottish Parliament has just introduced a Budget in which medium and large businesses pay a higher rate of business rates than they would in England and where Scottish higher rate taxpayers pay more tax than they would anywhere else in the UK. The Scottish Government is also planning higher planning fees, a potential new infrastructure levy and the returns from the Apprenticeship Levy are also less direct than for businesses in England. These additional costs for Scottish businesses are only now being felt, so could result in an even less competitive business environment in Scotland this year.

“It is time for the Scottish Government to abandon this high tax agenda before it is too late, as these policies risk driving investment out of Scotland. Instead, it must focus its attention on supporting businesses to grow and to create the jobs and wealth our economy needs. Urgent action is needed to reverse the additional costs that businesses are incurring in Scotland.

“The urgency of the Scottish Government’s enterprise and skills review and the agenda for change that this signals in terms of government policy is also now paramount, enabling a reinvigoration of how Scotland’s public and private sectors can work together in mutual support.

“These may be one quarter’s figures, but they are illustrative of a trend which has existed throughout 2015 and 2016. Scotland’s economy is in red alert and must be the number one priority for both the Scottish and UK Governments.”