Technical Notes for the 2007 Spending Review

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Government Economic Strategy ( GES) Target 1: Description

Title

GDP Growth. Purpose target.

Associated Targets

To raise Scotland's GDP growth rate to the UK level by 2011.

To match the GDP growth rate of the small independent EU countries by 2017.

Brief Description

The strategic growth targets are "trackers" in the sense that they aim to match a variable, the future UK growth rate and the future average growth rate of small EU countries by an identified point in time. This means that if there is an international economic downturn/ upturn affecting comparator countries, then the target will automatically adjust downwards/ upwards. Historical growth performance gives some indication of the extent of the challenge posed by these targets: Scotland's average GDP growth has been well below that of the UK and comparable small EU countries.

Strategic Objective(s) to Which Indicator Relates

This indicator informs progress in relation to all five Strategic Objectives:

Wealthier and Fairer;
Healthier;
Safer and Stronger;
Smarter; and
Greener.

More Detailed Definitions

Definitions of Keywords

Gross Domestic Product ( GDP) is a measure of the value added to materials and other inputs in the production of goods and services by resident organisations; before allowing for depreciation or capital consumption. In accordance with UK National Accounting principles, the oil and gas sector are excluded from the analysis as this is not attributed to any one area of the UK - termed "extra-regio" activity. GDP figures for Scotland exclude North Sea oil and gas. Net receipts from interest, profits and dividends abroad are also excluded.

There are two measures of GDP, market prices and basic prices. The estimates produced for Scotland are measured in basic prices, which excludes taxes less subsidies on products (taxes on products include VAT and excise duties). Gross Value Added ( GVA) is another term for GDP at basic prices.

Evidence Source

Data for Scotland and the UK

GDP figures for Scotland are produced by the Office of the Chief Economic Adviser ( OCEA) in the Scottish Government. Figures are published quarterly.

GDP at market prices is the headline measure used by the UK but they also produce estimates of GVA for their industry breakdown as it is difficult to break down taxes and subsidies below whole economy level. Although there is difficulty in allocating taxes and subsidies below national level, GDP can be estimated at market prices for Scotland using the UK ratio of current prices to basic prices.

All UK figures used for comparing GDP performance between Scotland and the UK refer to GDP at basic prices (or GVA). UK figures are taken from the Office for National Statistics' ( ONS) Quarterly National AccountsGDP publication.

Data for Small EU Countries

Information collected from the databank of the Organisation for Economic Cooperation and Development ( OECD). Figures are in constant prices, and constant Purchasing Power Parities ( PPP).

There is generally a lag in the availability of data for the small EU countries from the OECD of 12 to 18 months.

Baseline and Past Trends

The growth targets are "trackers", and their achievement will be dependent on Scotland's GDP growth rate matching the rates of our comparator nations - UK by 2011, and the small EU countries by 2017 - by the target dates. Therefore past trends provide an indication as to the nature of the challenge of these targets.

Match UK Growth by 2011 Target

The latest data show that over the last thirty years (1975-2005), Scotland's annual average GDP growth rate was 1.8%, significantly below the UK average of 2.3%.

Over the last 10 years (1995-2005), Scotland's annual average growth rate was 2.2%, compared to 2.8% for the UK. Scotland's growth has lagged that of the UK overall in nine out of the past ten years.

The latest GDP figures (2007 Q2) show annual growth of 2.3% in Scotland, compared to annual growth of 3.1% in the UK.

Chart: Scotland and UK annual growth rates, and 10 year average growth rates

Scotland and UK Annual Growth Rates, and 10 year average growth rates

The 2007 Pre-Budget Report forecasts that in 2010 (the closest forecast for 2011), UKGDP growth will be in the range 2.5 - 3 per cent.

Match small EU countries by 2017

The small EU countries are defined here as: Austria, Denmark, Finland, Ireland, Luxembourg, Portugal, and Sweden. There are two broad approaches to calculating the average growth rate for these countries. These calculations cover 30 year (1975-2005), and 10 year (1995-2005) periods - 2005 is the most recent year for which small EU countries' data exist - and are based on the following approaches:

  • A weighted approach, whereby the average is calculated by apportioning a weight to each of the seven countries that accounts for its relative economic size; and
  • An unweighted measure, where each of the seven countries' individual long-term growth rates has been added together and the total divided by seven to give a small EU countries' average ( i.e. all countries are weighted equally).

A comparison of the average growth rates is shown in table 1.

Table 1: 30 year, and 10 year average growth rates for small EU countries, Scotland, and UK

Table 1: 30 year, and 10 year average growth rates for small EU countries, Scotland, and UK

The weighted approach for calculating the growth of the small EU countries is the most appropriate for making comparisons with Scotland - and will be used for measuring progress against this target. All averages vary a lot according to time period chosen.

Methodology

Details of the methodologies employed in the production of the statistics can be found at: http://www.scotland.gov.uk/gdp

Data Ownership and Quality Assurance

The quarterly GDP statistics are classed as market sensitive National Statistics produced by the Scottish Government. The data sources are largely based upon Scottish extracts of surveys conducted by the Office for National Statistics.

Publication of Data

Published quarterly on the Scottish Government website ( http://www.scotland.gov.uk/gdp) on pre-announced dates (usually 3 rd Wednesday in January, April, July, October).