Last week I wrote about the extraordinary statistics from the Scottish government showing an apparent building bonanza – Scottish construction up an astonishing 13 per cent last year with the services sector by comparison ahead by a more sedate 2.3 per cent. No less than two-thirds of the increase in Scotland’s GDP is attributed to this extraordinary construction sector boom.

Now come figures from Scottish government boffins updating our GDP performance using the same methodology as the UK Office of National Statistics. The new measure includes certain economic activities previously excluded – among them R&D spending and some ‘illegal’ activities such as prostitution and the sale of drugs.

And, hey, haven’t we done well!

This has resulted in Scotland’s GDP now shown to be three per cent higher than it was under the old methodology.

So not only does Scotland have Stakhanovite brickies, but our hookers may also have been working flat out on those economic levers!

Now we don’t know what the constituent contributions are from R&D and those cash activities. And we cannot claim that they are making a superior contribution to those down south – figures for UK GDP were upgraded when the new methodology was applied last year.

In any event, GDP calculations for the ‘formal’ economy are already notoriously prone to revisions and corrections before trying to estimate the economic contribution of activities which are, well… lacking in paperwork and audited accounts.
And the revised figures are arguably more significant for what they tell us about the shortcomings of Gross Domestic Product as a yardstick of wealth or economic performance.

John Mclaren of Fiscal Affairs Scotland has again provided a helpful analysis of the revised figures. The key points are:

* For onshore GDP Scotland’s growth rate is notably lower than the UK’s (1.5 per cent a year versus 2.2 per cent p.a.). Over the period 1999 to 2013, the annual average growth rate for Scotland, including the North Sea, is unchanged at 4.1 per cent, slightly below the UK’s
4.2 per cent.

* Excluding the North Sea, this falls to 3.9 per cent for Scotland, while the UK’s remains unchanged.

* For 2013, Scottish GDP per capita (including North Sea output) remains above that seen for the UK. However, the differential has fallen from 14.7 per cent higher in 2008, to 6.1 per cent in 2013, due to a declining North Sea contribution.

* Including North Sea oil, Scotland ranks 15th amongst OECD countries in GDP per head, two places (and over $2,300 per head) higher than the UK, but well below its 2008 peak, when it ranked 7th.

But GDP per head, he argues, is not a very good measure of Scotland’s standard of living.Either Gross National Income (GNI) or Net National Income (NNI) is better.

Using NNI, Scotland ranks somewhere between 14th and 17th amongst OECD countries in 2013 while the UK is ranked 14th.

He says the general conclusions that can be drawn from the analysis include:

* Scotland’s Standard of Living is on a par with that seen for the UK and in many of the richer OECD countries.

* Scotland’s NNI is notably below its GDP, due to high foreign ownership in key areas like the North Sea.

Scotland’s GDP is erratic due to the contribution of North Sea oil and gas, which has seen large changes, year on year, in both production and in price over recent years.

The analysis also highlights a number of areas where the availability of Scottish data could be improved, including:
(i) a measure of real terms GDP growth including North Sea activity
(ii) Scottish price deflators
(iii) a Scottish GNI and/or NNI measure.

And the bottom line as ScotBuzz sees it?

Scotland’s onshore economic performance is a worry – it is notably lower than that for the UK and over a sustained period.

The comparison may be said to be unfair because the UK includes the City of London in which many Scottish institutions are represented.

But there is more we need to do to ensure our economy and infrastructure here is competitive and attractive to overseas investors and home-grown entrepreneurs alike.

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