Monthly economic brief: July 2021

Output

Scotland’s GDP grew 0.9% in May, but is 2.7% below pre-pandemic levels.

• Scotland’s GDP grew 0.9% in May (UK: 0.8%), its fourth consecutive month of growth. GDP continues to follow a similar pattern to the UK as a whole,^[1] with growth over the month driven by the services (1.1%) and production (0.7%) sectors offsetting a fall in construction sector output (-0.8%).

• The phased easing of restrictions in April and May on consumer facing services and the movement of people was a key enabler of the output growth in May, as an increasing number of businesses reopened and consumer demand strengthened.
• This was particularly evident in the services sector in which there was further strong output growth in accommodation and food services (24.4%) and arts, culture and recreation (9.8%) which were supported by the movement to level 3 restrictions at the end of April enabling the reopening of parts of the hospitality sector and the further easing of most of mainland Scotland to level 2 restrictions in May.
• There was also further growth in non-food retail (2.8%) and other mainly consumer facing services (4.6%), though to a lesser extent than in April when output picked up as they resumed trading.
• Production sector output in May was driven by increases in electricity and gas supply (3.1%) and water and waste management (5.7%) which offset falls in mining and quarrying (-0.3%) and manufacturing (-0.6%).
• The fall in manufacturing and construction output in May came on the back of stronger growth earlier in the year and followed a similar pattern to the UK as a whole.

• The four consecutive months of growth between February and May mean that Scotland’s GDP has recovered from the recent fall in output over November to January and has continued to recover back to its pre-pandemic level in February 2020 (having initially fallen to 22.6% below in April 2020). In May, Scotland’s GDP was 2.7% below its pre-pandemic level and is at its highest level during the pandemic.
• However there remain significant differences across sectors in the pace of recovery, which largely reflects the restrictions that have been in place and the extent to which this has impacted demand and trading capacity across sectors.

• While there are month to month variations, parts of the economy are generally operating above their pre-pandemic levels of output. For example, manufacturing output in May was 3.9% above its February 2020 level while construction output was 1.1% above.
• The service sector is more mixed with some parts (private and public) currently operating above their pre-pandemic levels and others below. Output from professional, scientific & technical services (+6.3%) and financial and insurance activities (+1.8%) has recovered relatively quickly from initial falls of 6%-7% in output at the start of the pandemic as businesses were in a position to adapt (e.g. working from home) and demand recovered.
• Consumer facing parts of the services sector however have been more directly impacted by restrictions on activity over the course of the year (e.g. requirements to close), and as such output remains further below pre-pandemic levels of output. The phased easing of restrictions on non-essential retail and hospitality over April and May has resulted in more rapid recovery over the last couple of months in these sectors as businesses have opened and resumed trading. For example, accommodation and food services output grew 73% in April and 24% in May and is now 27.6% below its pre-pandemic level, while arts, culture and recreation output grew 1.3% in April and 9.8% in May and is 33.4% below.