Economists question public sector construction 'sustainability'

Economists have questioned how long the Scottish Government can continue to prop up the economy with public construction projects while private sector growth lags well behind the UK.

Scotland's economic growth is over-dependent on a construction sector which has largely been fed by major public construction projects like the Forth Crossing, Edinburgh-Glasgow Improvement Programme and motorway upgrades, Ernst & Young has found.

Construction contributed 40% of GDP growth in last two years despite accounting for just 6% of the Scottish economy - creating a lopsided growth'' trend, it said.

Ernst & Young has questioned what will happen when these major public projects come to an end, and whether they will drive up Scotland's productivity in the long term.

Scottish growth has been revised down from 2.2% to 1.9% for 2015 and 1.8% in 2016 - compared with UK growth of 2.5% and 2.4% in 2015 and 2016.

Dougie Adams, senior economic advisor to the EY Scottish ITEM Club, said: Although Scotland has been impacted by the effects of lower oil prices on North Sea-related activity, weak growth in private services is a major cause of this year's shortfall in comparison to UK growth.

The private services sectors expected growth of 1.3% in Scotland is well below trend and compares with growth of well over 3% in the UK.

And, as in the UK, stalling world trade growth held back manufacturing.

This broad view conceals some bright spots. Water, electricity and gas, and chemicals are all expected to enjoy growth rates in excess of 5% this year, while we anticipate retail and wholesale to record a pick-up in growth in 2015.''

He described 14.6% growth in construction as impressive'' but potentially unsustainable.

He said: What happens when the major projects come to an end and will these improvements to Scotland's infrastructure drive up productivity in the longer-term?

Scotland's economy has been buoyed by the construction industry but this has created an overdependence of growth on this one sector. Scotland needs more balanced growth across the sectors in order to secure sustainable growth.

With construction output expected to pull back to just 3% in 2016, this means the forecast of continuing GDP growth requires a return to form in key areas such as professional and administrative services where growth is forecast to return to trend of about 4% in 2016.

Other sectors expected to grow by more than 2% include transport and communication, real estate, retail, accommodation and food.''

Scottish Labour's wealth creation spokeswoman Jackie Baillie said: This report points to a worrying stalling of growth in the Scottish economy, with performance at a much lower level than in the rest of the UK.

This is anything but a glowing report on the state of the Scottish economy, and with the decline in revenues from North Sea gas and oil, there are real challenges ahead.

The SNP need to stop making excuses and get on with the task of creating the right conditions for economic growth.''

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