EY Scottish ITEM Club Forecast 2014

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Focusing on the Scottish economy and its position in the UK, Eurozone and global market, the Scottish ITEM Club is the only Scotland-focussed non-governmental economic forecasting group to use HM Treasury’s model of the UK economy.
 

Forecast 2014: Key findings

  • Scotland is enjoying the most sustained period of growth in three years. Benefitting from a revival of consumer confidence the Scottish economy is forecast to grow by 1.9% in 2013. This is well above our forecast of 1.4% for the UK and means that the Scottish output is now back to the peak level achieved in 2007.
  • Improvements in the overall UK economy are also feeding through to a better GDP performance in Scotland via higher exports values to the rest of the British economy. These exports, which are around 2.3 times as great as Scotland’s overseas exports, were nearly 6% higher in mid-2013 than the same point in 2012.
  • The key concerns over the sustainability of growth in Scotland and the UK relates to ability of the consumer to continue to drive the expansion and to the likelihood that the pick-up in confidence and growth will translate into a revival of investment spending. The forecast of GVA growth of 1.7% for 2014 is predicated on the recovery spreading from the consumer sector into investment and exports.
  • Scotland’s higher savings ratio suggests that the consumer may be better placed than in the UK as a whole to continue spending, however the savings ratio in Scotland has tumbled by around four percentage points since the first quarter of 2012 and we expect households to pause for breath in 2014.
  • Total investment spending in Scotland is yet to respond to the consumer driven improvements in GDP growth, languishing around 20% below its post crisis peak. However investment spending continues to make a bigger contribution to the Scottish economy than in the rest of the UK, accounting for over 16% of GDP compared with 13% south of the border. If this investment pays-off it could be a significant positive for future Scottish growth.
  • Employment in Scotland is now firmly back on an upward path, with some data sources suggesting that the jobs market is making up for lost ground against UK trends over 2010–12. This growth remains dependent on the performance of private services, particularly the fast growing professional, scientific and technical services segment.
  • To date it is unlikely that the Scotland’s Referendum has had any noticeable impact on economic performance. This may change as the poll date approaches. Uncertainty in relation to the outcome could encourage a wait-and-see attitude to develop amongst business leaders in relation to capital spend and hiring decisions, but at present there are no signs that this uncertainty is any more important than other more global uncertainties in holding back.