Scottish Government

This item was published during the term of a previous administration that ended in April 2007

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Scottish Economic Report published

24/02/2003

The latest edition of the Scottish Economic Report is published today.

It presents a thorough review of recent trends in the global, European, UK and Scottish economies, as well as three shorter articles focusing on selected economic issues.

• Global activity has continued to recover since the June 2002 edition of the Scottish Economic Report, with the US in particular leading the way. US output grew strongly in 2002, more than 1 percentage point above the G7 average.

• The pace of growth accelerated towards the end of 2002, and growth is expected to be positive all major regions of the world this year.. IMF estimates world output growth of 2.8 per cent in 2002, and forecasts 3.7 per cent in 2003, with international trade expected to pick up as global demand recovers.

• The second half of the year witnessed encouraging signs in Europe, whereby Germany came out of its six-month recession and France recorded strong growth. However, unemployment continued to rise in the Euro area throughout 2002, with the unemployment rate in November 2002 rising to 8.5 per cent.

• Growth in the global economy was more hesitant during 2002 than had earlier been anticipated. The IMF estimates world growth was 2.8 per cent ; OECD estimates growth in its area at 1.5 per cent; and US growth stood at ? 2.2 per cent

• The economic performance of the Euro area was generally disappointing in 2002, with annualised growth in the year to 2002 Q3 standing at 0.8 per cent. Unemployment in the Euro area has remained high by comparison with the UK and US.

• The pace of the global economic recovery still remains extremely difficult to predictuncertain. The uncertainty surrounding the possibility of war with Iraq is affecting confidence, particularly in equity markets and as significant risks still exist: continuing unrest in the Middle East, thepossible increase in outlook for oil prices and consumer and business confidence will be important in determining the path of global activity and the possibility of expanded US military action in the war on international terrorism, pose risks to the global economy.

• The UK economy grew significantly in 2002, with a provisional annual estimate of 1.7 per cent. However manufacturing output continued to fall throughout the year.

• External commentators expect the UK economy grow in 2003, aided by the predicted acceleration of the global economic recovery. The consensus of independent forecasts is for significant growth of around 2.5 per cent in 2003 for the UK economy.

• The macroeconomic fundamentals of the UK economy remain sound, with low inflation (currently 2.7 per cent), low interest rates (3.75 per cent); strong underlying position in the public sector finances; and unemployment at historically low levels (5.2 per cent).

REPORT ON ECONOMIC DEVELOPMENT INITIATIVES

• The approach set out in the Executive's Framework for Economic Development in Scotland (published in June 2000) and A Smart Successful Scotland (published in January 2001) has been taken a further step forward with the publishing of the progress measures that will underpin the operational work of the Enterprise Network - Measuring Progress Towards a Smart Successful Scotland. Chapter 2 of the previous edition of the Scottish Economic Report contained the third update on the progress the Scottish Executive has made in the field of economic development. In this edition, new developments within existing programmes, along with new initiatives the Scottish Executive has undertaken since June 2002, are reported.

As in previous editions of the Scottish Economic Report, Chapter 2 contains an update on the progress the Scottish Executive has made in the field of economic development, providing a follow-up to the Framework for Economic Development in Scotland.

THE SCOTTISH ECONOMY: RECENT DEVELOPMENTS AND FUTURE PROSPECTS

• The Scottish economy returned to growth in the second half of 2002, all be it below the long term trend with annual GDP growth in 2002 Q3 at 0.6 per cent.

• While service sector output - accounting for around two-thirds of Scottish GDP - increased by 5 per cent over the year to 2002 Q3, manufacturing - accounting for around one-quarter of GDP - fell back by 10.9 per cent for the corresponding period. Service sector growth reflected the particular strength of the financial services and real estate and business services sectors.

• The labour market remains in good health, with unemployment at historically low levels. ILO unemployment was 5.9 per cent in the most recent quarter (October-December 2002). Total employment rose by over 47,000 in the year to this quarter.

SELECTED ECONOMIC ISSUES

The Report also contains three articles which examine specific economic issues:

• The Scottish Aerospace Industry: Ready for Take Off?

This article summarises the current state of the Aerospace industry in Scotland, looking at recent research into the sector. The external authors analyse the strengths and weaknesses of the sector, and suggest what policies could ensure continued success of Scottish aerospace firms.

• Household debt in Scotland and the UK.

The article looks at the increasing levels of personal borrowing, both in absolute terms and as a percentage of disposable income. The types of debt being incurred and , the potential pitfalls to the economy from excessive debt levels, and the effects of any potential change in interest rates are analysed.

• Health and Economic Benefits of increased Physical Activity in Scotland.

This paper, which draws on research conducted for the Executive's Physical Activity Taskforce, attempts to quantify the benefits which would result from an increase in the physical activity levels of the Scottish population. It draws the result that a relatively modest increase of 5 per cent in the numbers of people taking regular physical exercise could result in monetary and other benefits which total £70 million pounds over 5 years.

The Scottish Economic Report (SER) is published twice a year. With this seventh edition of the report having four chapters. The first chapter provides an overview of the Global, European and United Kingdom economic context over the recent past and looks at future prospects. The second chapter reports on recent initiatives within the field of economic development.

Chapter 3 reports on the Scottish economy, providing an overview of the Scottish economy and summarising recent developments and prospects.

Chapter 4 provides two articles which are intended to review or summarise more substantive documents or work of value to the Scottish Executive, or to provide an opportunity to present new or different perspectives to stimulate further debate in areas of topical interest.

1. Editorial responsibility for the Scottish Economic Report lies with the Office of the Chief Economic Adviser of the Scottish Executive. The next edition of the Scottish Economic Report will be published in August 2003.