State of the economy: September 2019

Scotland Summary

GDP contracted in Q2 2019 for the first time since 2016.

• Scottish GDP contracted by 0.3% in Q2 2019 and annual growth slowed to 0.7%.
• Marginal growth in the services sector (0.1%) was offset by falls in production (-1.1%) and construction (-2.2%) output.
• The manufacturing sector contributed most strongly to the contraction, with output falling -2.5% reflecting the unwinding of stockpiling undertaken in Q1.

Labour market performing well by historical standards.

• Unemployment increased over the quarter to May-July 2019 to 4%, however has fallen over the past year and remains low by historical standards.
• The employment rate has fallen slightly over the latest quarter and year to 74.9%, with 2.7 million people employed.
• Full time employment rose by 47,000 over the year, more than offsetting a 40,000 fall in part-time employment.
• The inactivity rate rose over the quarter and year to 21.9%.
• Labour productivity grew by 0.4% in Q1 2019 and by 1.1% over the year.

Business and consumer confidence remains weak.

• The RBS Purchasing Managers Index reported marginal business activity growth in July and August while business confidence fell to its lowest level in over 3-years.
• Consumer sentiment in Scotland improved in Q2 2019, however remains negative and notably below the series average [see page 16]

GDP growth is forecast to slow in 2019.

• Independent GDP forecasts estimate GDP growth to slow from 1.4% in 2018 to around 1% in 2019. [see page 17].
• Ongoing Brexit uncertainty is expected to continue impacting business investment and growth is generally expected to pick up in 2020 assuming a smooth Brexit transition.
• A no deal Brexit remains a downside risk to the economic outlook and risks pushing the economy into recession.