Scottish economic growth is set to moderate during 2008, reflecting the expected slowdown in both UK and global economic growth this year, according to the Bank of Scotland Index of Leading Economic Indicators…

Housing activity is a key indicator in assessing an economy’s potential future performance. Not only does data on housing starts provide an indication of trends in employment within the construction sector, it also signals potential fluctuations in demand for durable goods. If residential construction is growing, we can expect an increase in demand for durable goods, such as major appliances, to follow.

Growth of new housing starts accelerated sharply at the end of 2002 and the beginning of 2003. This was associated with a strong pick-up in GDP growth as a strong housing market supported spending.

However, since mid-2004 the trend in the average rate of change in new housing starts has been downward, with recent data pointing to double-digit annual declines. There has been some divergence from overall economic performance in the recent past – for example, GDP growth strengthened markedly during 2006 in line with a strong improvement in global economic conditions.

Housing starts declining

Nonetheless, recent declines in new housing starts, combined with increased food and energy costs,  reduced business and consumer confidence and sharp share price falls, indicate that an economic slowdown is likely over the coming months.

Martin Ellis, chief economist at Bank of Scotland, commented: "It is not surprising that a moderation in Scottish economic growth is likely in 2008 given the widely expected easing in UK and global economic growth this year.

“However, with employment in Scotland expected to reach record levels in 2008, retail sales proving resilient and the Scottish housing market forecast to outperform the UK for the fifth consecutive year, the outlook for Scotland remains sound."