Construction sector output falls by 1.9 per cent in second quarter

According to official Gross Domestic Product (GDP) figures, the Scottish economy as a whole grew 0.4 per cent compared to the first quarter of 2016, though growth in the production industries and services industries (particularly business services and finance) was tempered by the construction industry contraction.

The construction sector accounts for around 6 per cent of the Scottish economy. While the sector enjoyed extremely strong growth during 2014 and early 2015, that growth has now tailed off, falling by 4.5 per cent between Quarter 2 2015 and Quarter 2 2016.

The Scottish Building Federation (SBF) urged caution in interpreting the GDP figures.

Managing director Vaughan Hart said: “The second quarter of 2016 was particularly strong for the housing sector of the Scottish construction industry, with new housing output valued at £675 million during the three months to June, an 11 year high. Infrastructure also remains strong although it has begun to decline from the record breaking quarterly output levels of more than £1 billion that we witnessed during 2015.

“At £60m, private industrial output remains very subdued, underlining the negative impact of the Scottish Government’s decision to remove empty property rates relief. Meanwhile, we’ve seen encouraging signs of growth in Scottish construction employment, up by 6,000 to 194,000 during the second quarter of 2016.

“Of course, the second quarter of 2016 pre-dates the Brexit vote. We will need to wait for updated figures towards the end of the year to see what short term impact the UK decision to leave the EU may have had on the construction sector and the wider Scottish economy. As an industry, we want above all to avoid talking ourselves into an economic downturn if the figures and the experience on the ground don’t actually back that up.”

On an annual basis, compared to the second quarter of 2015, Scottish GDP as a whole grew by 0.7 per cent.

The services sector, which accounts for three quarters of the economy, grew by 0.5 per cent during the latest period, the production sector grew by 0.3 per cent.

The business services & finance industry had the greatest contribution to growth, accounting for 0.4 percentage points of growth in the Scottish economy in quarter 2 2016.

The industries which has had the greatest contribution to contraction are Construction and Electricity & Gas, which both accounted for 0.2 percentage points of contraction.

The closure of Longannet coal-fired power station, estimated to have resulted in a reduction of Scottish GDP of around 0.2 percentage points alone, has been marked as a one-off closure which will not have an ongoing impact on the growth of the Scottish economy.

Speaking on the economy as a whole, cabinet secretary for the economy, jobs and fair work, Keith Brown, said: “It is encouraging to see modest growth since the start of the year, which is the highest rate of quarterly growth since the start of 2015.

“These figures show that prior to the vote to leave the EU Scotland’s economy was growing.

“Despite concerns surrounding the EU referendum, the fundamentals of Scotland’s economy are strong and recent successes, such as Scotland securing more foreign development investment projects in 2015 than any other part of the UK outside London, are to be welcomed.

“The Bank of Scotland’s latest PMI showed Scotland’s private sector output expanding in September and our labour market now showed record quarterly growth employment over May-July 2016, and the unemployment rate is now below that of the UK.

“But in the months surrounding the EU referendum, there is no doubt that businesses faced challenging circumstances and damaging uncertainty. These are global issues and Scotland is not immune. We have constantly made clear our concerns that the vote will have a negative impact on investment and our economy. That is why protecting Scotland’s relationship with the EU, and continued membership of the single market is crucial – so we can build on some of these positive economic trends, rather than have this progress placed under serious threat.

“We are also acting now to support business. That is why we are establishing a £500m Scottish Growth Fund, which will help companies access capital through guarantees and loans. And we are injecting some £100m through a capital stimulus package to keep our economy moving and protect jobs. We are yet to see that action matched by the UK government, and I urge them again to come forward with their own capital stimulus package as a matter of urgency.”