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Scottish Economic Report: March 2004
Executive Summary
Chapters 1 & 3 of SER March 2004 provide an overview of Global and Scottish economic developments. According to recent data and other indicators, the immediate prospects for the Scottish economy appears positive. The Executive's provisional estimates show Gross Domestic Product in Scotland (seasonally adjusted and on the new chainlinked basis) rising by 0.3 per cent in 2003 Q3 and by 2.1 per cent in the four quarters to 2003 Q3.
Although the impact of chainlinking and the application of a more up to date weighting framework has been to revise recent growth rates upwards, the sectoral analysis remains consistent with previous estimates. In the year to 2003 Q3, annual output in the Scottish service sector grew by 3.5 per cent, compared with a 3.1 per cent drop in the production sector and a 4.4 per cent rise in construction. In addition, the labour market data has been positive over the past year. Seasonally adjusted employment in Scotland over the period October-December 2003 increased by 4,000, standing at 2,384,000 on the previous year.
International developments play a critical role in Scottish economic performance. The openness of the Scottish economy is extensive, with the ratio of total imports to total domestic output at around 37 per cent, while the ratio for total exports is around 33 per cent. Therefore the recent global economic upturn should exert a positive influence on the future prospects of the Scottish economy.
The global economic upturn appears to be driven by the US, although key European markets are indicating that economic prospects are positive. Germany and France are reporting returns to positive levels of growth in the second half of 2003. The US economy has shown strong growth over the second half of 2003, while growth in the Euro-zone has been positive over recent quarters.
As exports are seen as a key driver of growth in the Scottish economy, the prospects of key markets are crucial. Total exports from Scotland were 18,370 million in 2002, with Germany being the main market accounting for around 13 per cent of total exports. The main trading regions of Europe, North America and Asia represent around 80 per cent of all the international exports from Scotland, and the competitiveness of the pound and Euro is therefore an important factor for future economic performance in Scotland.
Although the main indicators are positive, it is worth noting that threats still exist. As a result of tax cuts, large deficits are projected for US government finances over the coming years. In addition, inflationary pressures may become more prevalent if demand for US products continues to accelerate at the current rate. Further to this, threats to the key Euro-zone economies continue. Private consumption is the key driver of demand within the French and German economies, and therefore it is important that consumer confidence does not deteriorate. As exports play a crucial role in these economies, future exchange rate fluctuations will influence continued economic recovery. However, main economic forecasters predict that there will be growth in Scotland and the main economic trading regions over 2004 and 2005.
Chapter 2 provides a report on the progress within the main policy areas relevant to economic development. The chapter provides an ongoing update of the progress made by the Executive in key areas identified in FEDS. It attempts to bring together key new initiatives. This includes new phases within existing programmes, along with new initiatives undertaken since the last report in September 2003.
Chapter 4 contains five articles that discuss topical issues in the Scottish economic scene. The first article, on the Scottish Retail Sector, is externally authored by Elinor Jayne of the Scottish Retail Consortium and Margaret Holligan & Jeremy Peat of the Royal Bank of Scotland. The article considers the relative importance of the retail sector, while placing the discussion in the context of global developments. The article shows the strong performance of the sector in terms of GVA growth and employment, while it suggests that there is no reason why the Scottish retail sector will not continue to benefit from strong consumer demand over 2004.
Secondly, there is an article on Scottish Salmon Farming. The aim of this paper is to discuss the contribution made to the Scottish economy by the production of farmed salmon, and how this has developed over the past decade or more. Growth in the industry has been driven by the increases in productivity, which have been passed onto consumers through lower prices. The productivity gains reflect innovations in production technology and biology, as well as the increasing importance of economies of scale.
The third article is on the Remuneration of General Medical Services. This summarises the work of economists in the Scottish Executive Health Department and NHS Information Services Directorate in providing a formula for GMS in Scotland. The article discusses the individual components of the Scottish Allocation Formula (SAF), and how this formula fits into the wider financial framework of the GMS contract. The paper also examines the existing remuneration regime for GMS.
The fourth article is on Men and Women At Work 1992-2002. The article looks at the changes in the number of male and female employees over the decade to 2002. The number of people of working age employed in 2002 was at historically high levels, and this article looks at some changes in the pattern of employment associated with this increase. The demand side - which sectors have grown or shrunk - and the supply side - in particular the balance between male and female workers - are considered, while it is shown that although female employment has increased in total, the share of employee jobs filled by women has fallen within several individual industrial sectors.
Finally, there is an article on Demographic change in the Highlands and Island. The article has been written by Alastair Nicholson of Highlands and Islands Enterprise, and tracks the recent economic fortunes of the Highlands and Islands. The performance has changed remarkably since the mid-1960s after more than a century of decline. The article examines and discusses changes in a number of factors that have contributed to the recovery, such as diversification of the economic base through the expansion of the tourism sector and the arrival of Information & Communications Technology (ICT).
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