BILL JAMIESON

It seemed to be going so well: twelve successive quarters of positive growth, employment outperforming the rest of the UK and confident forecasts from the government’s chief economist.

“The overall outlook”, he opined just four months ago, “remains positive”.

And then, with new figures last week, the lights just switched off.

These figures showed overall output in Scotland grew by just 0.1 per cent between April and June, compared with 0.4 per cent in the previous quarter.

This is well below that of the UK overall where the economy grew by 0.7 per cent over the same period. And it takes the annual growth rate in Scotland, down from a government forecast of just 2.3 per cent four months ago and the 2.7 per cent growth performance last year to just 1.9 per cent.

Without a strong contribution from construction, helped by the new Forth Crossing, growth could well have turned negative. And another quarter like that would put Scotland into recession.

If ever there was an argument for a truly Independent Fiscal Commission, producing its own forecasts outwith the Scottish government’s Ouija board, this is surely it.

The figures have passed with barely a peep from the Scottish parliament. Could not a single MSP have stood up to ask for an explanation? A simple ‘What’s gone wrong?’ might have helped.

The answer may lie in the accuracy of the numbers. Can we really believe them?

Tony Mackay, the Inverness-based economist, certainly doesn’t. His latest commentary out this week carries a blazing critique of these statistics.

His own estimate is that Scottish GDP/GVA increased by approximately 0.6 per cent during the second quarter – still lower than the UK overall. Clearly performance has been hit by the adverse impact of the collapse in world oil prices.

“However”, he writes, “the latest Scottish government [number] of just 0.1 per cent is unbelievably low. That is equivalent to annual growth of just 0.4 per cent over four quarters.” As he points out, the official press release stated that annual growth over the last twelve months was an estimated 1.9 per cent.

The new Q2 estimate comprises zero growth in services (accounting for some 75 per cent of total output), minus 0.8 per cent in production and plus 3.5 per cent in construction. “I do not believe these estimates”, he writes. “There is no evidence from elsewhere to suggest that there was no growth in service sector output”.

Many observers prefer to go by the labour market figures. These show that unemployment in Scotland has fallen steadily over the last year, including during the second April-June quarter. The unadjusted claimant count total fell by 9,300 during those three months and the seasonally adjusted total by 4,000.

“These”, he adds, “do not suggest any significant slowdown in Scottish economic growth during Q2.

“The same is true of most of the other short term indicators such as airport passenger numbers, new car sales and the Bank of Scotland’s PMI index. Airport passenger numbers at three main airports increased in April,  May and June, despite falls at Aberdeen.

“Similarly the Bank of Scotland’s PMI index averaged 50.7, 51.9 and 51.2 respectively in those three months, which implies growth during the quarter, albeit modest.

“It is very difficult therefore to believe the accuracy of the official Q2 estimates.”

Mackay has also taken another swipe at the Scottish government’s construction output estimates which he also describes as “unbelievable”. It is not the first time he has done so and he is not alone. They show annual growth of 19.4 per cent in 2014 and imply annual growth of a further 13 per cent in the first half of 2015.

In the media release Mr Swinney stated that the figures “show continued growth in Scotland’s economy, with three years of uninterrupted expansion even against a backdrop of economic challenges and headwinds”. Etc. etc.

But, as Mackay points out, “the Scottish Government economists and statisticians should explain why they have estimated only 0.1 per cent growth in Scottish GDP, or the Cabinet Secretary should explain the surprisingly poor performance”.

The Q2 estimates are obviously a political embarrassment for government ministers, notably John Swinney. But at least he can take some consolation that this time the complaint is not about charges from the usual suspects on over-optimism.

Au contraire.

Economist John Mclaren of Fiscal Affairs Scotland (RIP) points out that the more appropriate comparable figure for UK performance in the second quarter is the one excluding oil and gas, which would take the comparison down from 0.7 per cent to o.5 per cent.

He also agrees that the figures for construction seem implausible. And it opens up the uncomfortable prospect that once the Forth Crossing work is finished, Scotland’s economy could be in real trouble barring a Lazarus-like recovery in services.

“The biggest omission to my mind”, he writes, “is the almost complete absence of any attempt at analysis by Ministers or officials - or the Council of Economic Advisors whose evidence to the Economy Committee last week, from what I’ve read was derisory in terms of analysis.”

All the more reason for Scotland to have an Independent Fiscal Commission that is robust, fit for purpose – and capable of producing its own independent forecasts of Scotland’s economic performance.

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