2 minute read 28 Feb 2020
hydro_glasgow_scotland

How business investment and Scotland’s ability to attract talent is pivotal for economic growth

By

Mark Gregory

EY UK Chief Economist

Committed to using economics to drive informed decision-making in the public and private sectors. Helping rebalance the UK economy. LinkedIn Top Voice. Sports mad. Loyal supporter of Stoke City FC.

2 minute read 28 Feb 2020

Economic growth gap between Scotland and the UK is to narrow but increased business investment will be critical as the population is predicted to peak in 2021.

I
n the face of a slowing global economy and continued political uncertainty, the Scottish economy is predicted to grow by 0.8% GVA in 2020 and subsequently narrow the growth gap between Scotland and the UK by 2022.

Download the EY Scottish Item Club Winter Forecast (pdf)

The Scottish economy grew in 2019 by 0.9% GVA and will continue to do so in 2020 (0.8% GVA). While it is expected to trail UK economic growth, 1.4% GVA in 2019 and 1.2% GVA in 2020, the growth gap between the two will decrease year-on-year from 0.5% GVA in 2019 through to 0.2% GVA in 2022.

Key findings

  • The Scottish economy is predicted to grow by 0.8% GVA in 2020 before picking up to 1.4% in 2021
  • The growth gap between Scotland and the UK is expected to narrow from 0.5% GVA in 2019 to 0.2% GVA in 2022
  • Scotland’s population is estimated to peak in 2021 and working-age migration to have fallen by 70% between 2018 and 2020
  • The private services sector will continue to drive growth across Scotland, contributing more than two thirds of GVA growth in 2020
  • Professional, scientific and technical activities is the sub-sector expected to drive most growth in 2020 at 2.7% GVA

Consumer spending in Scotland is expected to grow by just 0.4% in real terms this year. While this will be aided by 0.8% in real terms growth in personal disposable incomes, consumer spending is predicted to be held back later in the year as caution increases when nearing the deadline for the EU transition period.

This will be a pivotal year for the Scottish and UK economies following the decisive outcome of the General Election in December. Global economic growth is slowing, further complicated by Coronavirus, and trade negotiations are ongoing, but uncertainty is beginning to show signs of easing and there has been an uptick of sentiment.
Mark Gregory
EY UK Chief Economist

Private services, which make up more than half of the Scottish economy, will continue to drive growth across the country by accounting for more than two-thirds of Scotland’s total GVA growth in 2020. The sub-sector; professional, scientific and technical activities will make the largest contribution – 20% of total growth.

As a firm we’ve identified private business as a key growth area in Scotland and have invested in our service capabilities to ensure we have the skillsets and capacity to proactively support family-owned, PE-backed and entrepreneurial companies with ambition to grow. 
 

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EY's 7 Drivers of Growth

Changing demographics

Our forecast shows a decline in the working age population, both through natural change and lower migration. Net migration remains positive but has fallen consistently since 2016 when it was 32,000, this is now estimated to fall below 8,000 representing a 75% decrease.

The situation is intensified by this report’s forecast that Scotland’s total population will peak earlier than previously anticipated, in 2021 at nearly 5.45 million.

Forecast of Scotland’s Population

5.45 million

The number of Scotland’s total peak population by 2021

Greater economic balance across Scotland

While the geographic imbalances between the North and South of England are set to widen over the next three years, as outlined earlier this week in EY’s Regional Economic Forecast, Scotland’s economic growth is more geographically balanced.

GVA growth in four out of Scotland’s seven city regions is predicted to grow at a faster pace annually in the period 2020-2023 compared with 2016-2019 (Aberdeen, Dundee, Glasgow and Perth & Kinross). While growth in Edinburgh and Stirling will ease off in the next three years, Edinburgh will be the strongest performing Scottish city and Stirling will rank in third place.

Edinburgh, Glasgow and Stirling, with an annual growth of 1.9% GVA, 1.7% GVA and 1.6% GVA respectively between 2020 and 2024, are all predicted to perform above the Scottish average pace of growth. Scotland’s two biggest cities will also grow faster than the UK annual average (1.6%) for the same time period.

Six cities are expected to experience an increase in employment annually with only Aberdeen narrowly missing growth at -0.1% per year from 2020-2024. A common area of GVA growth to all seven cities is predicted to be professional, scientific and technical activities, a sub-sector of private services.

Summary

We are undoubtedly in a significant period of change, when the 2020 transition deadline with UK leaving the EU approaches, but this typically also presents opportunities. Business and government must work in partnership to identify and capitalise on opportunities to drive continued, sustainable growth.

Any assurances or initiatives to support continued business investment and ensure Scotland retains its ability to attract talented people to the Scottish workforce could prove to be pivotal to economic growth.

About this article

By

Mark Gregory

EY UK Chief Economist

Committed to using economics to drive informed decision-making in the public and private sectors. Helping rebalance the UK economy. LinkedIn Top Voice. Sports mad. Loyal supporter of Stoke City FC.