Scottish economy to slow sharply in 2017, warns think-tank

Scotland's economy is forecast to grow a meagre 0.4 per cent next year, half the rate for the UK as a whole and slashed from a 2 per cent prediction last June, a think-tank says in a report today.

EY's Item Club said the economic outlook was clouded by potential policy changes by US president-elect Donald Trump. Picture: John Devlin

The EY Scottish Item Club report also sharply cuts its forecast for Scottish output growth in 2016 to 0.7 per cent from the 1.2 per cent it predicted last summer.

The economic forecasting group, the only one to use the UK Treasury’s model for the economy, predicts 1.9 per cent for UK GDP growth in 2016 and 0.8 per cent in 2017.

“The growth of Scotland’s economy will be much slower over the next couple of years as existing headwinds are compounded by political and economic uncertainty,” the report says.

It adds that “modest” growth north of the Border is expected to return from 2018, but that the outlook “will depend on the economic landscape as shaped by Brexit, potential policy changes brought by a Trump presidency and the implementation of extended powers to the Scottish government over tax and revenue spend”.

Consumer spending and investment drove the expansion of Scottish GDP from mid-2015, but this has faded, says the EY Scottish Item Club, with both set to suffer from savings ratios dropping to record lows and business spending reined in by political uncertainties.

Dougie Adams, senior economic advisor to the EY Scottish ITEM Club, said: “During the last 12 months Scottish growth has been challenged by various economic factors.

“The unsustainable growth from the construction sector has waned as expected and the impact of low oil prices continues to reverberate through the economy.”

The oil price, particularly important in Aberdeen and the rest of North-east Scotland, is currently a little under $50, down from $115 in the summer of 2014.

Mark Harvey, EY senior partner for Scotland, said: “None of the UK’s nations, regions or cities will be immune to slower economic growth over the next three years but there will be significant variations across the country indicating there is more work to be done in rebalancing the economy.

“From a Scottish perspective we would, of course, want to see growth boosted to be more in line with the UK. In a slower growing economy it will be harder to achieve more economic balance, not only on a UK level but across Scotland too.

“Although we can see pockets of growth in Scottish cities, little progress is likely to be made to increase these further and expand the output of the weaker cities in the short-term.”

Today’s report says that despite the gloom some of Scotland’s cities remain centres of growth. It forecasts Scottish employment growth of an average 0.2 per cent in 2016, but with Inverness, Perth and Stirling all outstripping this with growth of 0.6 per cent, 1.2 per cent and 0.7 per cent respectively.

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