Scotland’s Chief Statistician has just released the estimated figures for Scotland’s Gross Domestic Product [GDP] for the first quarter [Q1].
Also known as Gross Added Value [GVA], this measures growth in ‘basic prices’ – before allowing for depreciation or capital consumption – and it measures growth at ‘constant prices’. This means that the figures have been adjusted for inflation so that they represent changes in the volume of output rather than value – which is how they represent growth in real terms.
The headline figure is encouraging, showing that Scotland’s GDP at constant basic prices was at 0.4% above baseline in the first quarter of 2013.
However, while this is described as ‘growth’ of 0.4% – accurately, since it represents a performance delivering GDP at 0.4% above flatlining – it was nevertheless a performance 20% below that of the previous quarter, Q4 of 2012, which reached 0.5% above baseline.
Within the 0.4% above baseline for the last quarter:
- output in the Services sector was on 0.8% above baseline, where in the last quarter[Q4] of 2012 it had been at 0.1% above;
- total output in the Production sector was at 0.1% above baseline – a fall from around 1.8% above baseline in the last quarter of 2012;
- output in the key Construction sector fell to -2.5% on baseline – a significant drop but more so in that this also represents a fall from a position around 2.45% above baseline in Q4 2012.
The Scottish Government press release emphasises: ‘On an annual basis comparing the latest quarter (2013 Q1) with the same quarter of the previous year (2012 Q1), GDP grew by 1.2%. ‘
This masks the facts that the first quarter of 2012 showed a sudden substantial collapse in Scotland’s GDP on the previous quarter. In Q4 2011, overall Scottish GDP was at 0.5% above baseline. In the next quarter, Q1 2012, it had fallen to -0.5% below.
Since then, it has progressively climbed back to a point where in the last quarter, Q4 2012, it was back to where it was in Q3 2011 and has in Q1 2013, fallen back 20% on that performance.
Net receipts from interest, profits and dividends abroad are also excluded from basic prices estimates. This distorts the overall picture of the positive consequences of growth in the Scottish economy – which is a very ‘open’ economy. This means that a substantial percentage of companies operating in Scotland are owned elsewhere, seeing interest, share dividends and profits exported.
Problems with statistical comparisons with overall UK figures
The Scottish Government Press Release makes much of the fact that the figures for the overall UK for Q1 2013 are below those of Scotland, although the key construction sector for the UK overall fell by -1.8%, as opposed to Scotland’s performance in that sector, which was -2.5% down.
The difficulty with the Scottish estimates – which the Chief Statistician points out in this quarterly report – is that they are less reliable than the overall UK figures for some obvious reasons that owe no fault anywhere. It simply means that there is greater uncertainty in the statistical process and in the sampling in Scotland.
As the report underlines, the UK figures are generally more reliable because they are produced by balancing three independent sets of estimates: Output (GVA or GDP), Income and Expenditure.
A second major issue is that, being a much smaller economy than that of the overall UK in which it is included, the sampling base for Scotland is much smaller and is therefore more vulnerable to statistical variance.
A quick way to understand this in practice is to compare two surveys of community responses to an important local issue, where one community has 1,000 eligible residents and the other 100.
Supposing both surveys return the same 50% response rate to the survey, the analyses are then based on those responses.
If each showed a 70% approval rate for the proposal in question, that would represent 350 individuals in the first instance and 35 in the second.
Had 5 individuals in the second – small – community had expressed dissatisfaction rather than satisfaction, the approval percentage would reduce to 60%.
If five individuals in the first survey, in the larger community, had been dissatisfied rather than satisfied, the approval percentage would have fallen only to 69%.
It’s the same with Scotland’s economic performance.
With a smaller base, changes in circumstances amongst relatively few businesses impact much more strongly on the overall pattern positively and negatively.
This means that responsible commentary on these figures ought not to get drawn in to comparisons with the overall UK figures where overall GDP showed at 0.2% above baseline.
The basic reassurance is that Scotland is doing OK and that the UK as a whole is doing OK.
Scottish Government press release
‘This quarterly publication measures growth, in real terms, of Gross Domestic Product at basic prices, also known as Gross Value Added, for Scotland.
‘The main findings are:
- ‘Scottish Gross Domestic Product (GDP) in constant basic prices grew by 0.4 per cent during the first quarter of 2013.
- Output in the Services sector grew by 0.8 per cent. Total output in the Production sector grew by 0.1 per cent. Output in the Construction sector fell by 2.5 per cent.
- On an annual basis comparing the latest quarter (2013Q1) with the same quarter of the previous year (2012Q1) GDP grew by 1.2%.’