Outlook and appraisal [June 2003]

A stronger than anticipated growth performance in the 4th quarter of last year meant that GDP growth in Scotland had improved in 3 successive quarters since the technical recession at the end of 2001 and beginning of 2002. It appears unlikely from the business survey evidence that this progressive strengthening of the rate of growth will have carried over into the first quarter of the year. However, the fairly rapid resolution of formal hostilities in the war on Iraq has removed some of the uncertainties affecting the world economy. Several other factors are working in favour of recovery: falling oil prices, a pick-up in equity markets, incipient signs of recovery in business investment and further monetary policy easing. Against this background most forecasters are predicting that growth in all the major economies will be stronger this year than last. However, recovery will be slow and will only become more apparent in the second half of the year. Scotland is unlikely to diverge from the general pattern. We are now forecasting somewhat faster growth and greater job creation in Scotland in 2003 and 2004 than in our March Commentary. GDP growth is expected to reach 1.3% in 2003, compared to our March forecast of 1.1%, and 2.2% in 2004 against 1.8% in March. Strengthening service sector growth and recovery in manufacturing results in anticipated net job creation of over 33 thousand in 2003 and 44 thousand in 2004. Unemployment is projected to continue to fall slightly to 6.2% and 3.7% this year on the ILO and claimant measures respectively and 5.9% and 3.7% in 2004