Scottish GDP drop bigger than UK

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Scotland's economy suffered a bigger fall than the rest of the UK in the third quarter of last year, official figures have shown.

The data showed Scotland's gross domestic product (GDP) fell 0.8% in the third quarter of 2008 - compared with a fall of 0.6% for the UK as a whole.

Scotland is not yet officially in recession, but Finance Secretary John Swinney admitted it soon would be.

The fall in GDP was the first in Scotland since 2002.

Recession would mean two consecutive quarters of negative growth, and Scotland's GDP in the second quarter of last year increased marginally, by just 0.1%.

It was confirmed on Friday that the UK as a whole moved into recession in the fourth quarter, when GDP shrank by 1.5% after the previous quarter's 0.6% decline.

It is clear that the Scottish economy is now likely to follow the UK economy into recession John SwinneyFinance secretary Mr Swinney said the figures reflected the global economic difficulties faced by countries across the globe.

He added: "There are some positive economic indicators for Scotland - our employment rate exceeds that of the UK, we have lower unemployment and higher economic activity than the UK average, while we also have areas of real strength like renewable energy.

"But it is clear that the Scottish economy is now likely to follow the UK economy into recession."

He used the figures to justify his budget, which faces a crunch Holyrood vote on Wednesday evening.

"These tough economic times demonstrate yet again the imperative of pushing ahead with the spending plans in our Budget Bill, which will accelerate £230m of capital spending in the next financial year, supporting nearly 5,000 jobs," he said.

The quarterly figures showed that Scotland's GDP rose by 1.4% annually, despite the 0.8% quarterly fall.

In the third quarter the service sector fell by 1.1%, the production sector grew by 0.8%, and the construction sector fell by 1%.

Within the service sector, the biggest fall was in real estate and financial services, down 3.7%, but the financial services sector grew by 0.5%.

'Address the problems'

CBI Scotland director David Lonsdale said that the figures demonstrated how the long and sustained period of economic growth in Scotland had come to a "shuddering halt".

He warned: "The intensity and speed of falling demand, combined with the credit crunch, means this downturn is likely to get worse before it gets better."

Liz Cameron, chief executive of Scottish Chambers of Commerce, said it was "worrying" that the contraction in the economy was even more severe in Scotland than in the UK as a whole during the third quarter.

She added: "The task ahead for business and our governments is to work together to ensure that we tackle the immediate problem of credit flow.

"Once this has been restored in our economy, we can then act to address the problems caused by the recession and prepare ourselves to take advantage of the opportunities that will be presented by the recovery."