Economic growth is picking up pace – but how does Scotland accelerate faster?
- Scotland’s GDP growth is forecast to match the UK’s as a whole in 2018 at 1.4%
- Private services will continue to drive growth, with the expectation that they will account for four fifths of GVA growth in 2018
- Employment growth is set to weaken and fall behind the UK’s
- Edinburgh and Glasgow continue to power economic growth, highlighting the need for other Scottish cities to improve performance
The momentum of Scotland’s economic growth is picking up pace, navigating volatility, with the consumer keeping the economy going. In 2017, GDP growth is expected to achieve 0.8%, double previous predictions. This positivity is set to continue next year, when Scotland’s GDP growth is expected to match UK-wide growth at 1.4%.
Household spending is to be a key driver behind Scotland’s strong performance in 2018, with growth forecast to be 1.1%, an increase from 0.8% in 2017. This is a result of an increase in real incomes created through a combination of modestly higher employment, a rise in average earnings and an easing of inflation through the year. This report also highlights that businesses are reasonably positive, and export opportunities and performance are encouraging.
Private services will drive growth in 2018, accounting for four fifths of growth.
After contracting in 2015 and 2016, manufacturing is expected to make a positive contribution of 1% growth in 2018 and 2019, as well as 1.3% annual average growth over the next five years. This can be attributed to continued expansion in world trade, a competitive exchange rate, and productivity increases. The fastest growing Scottish sub-sectors are likely to be professional, scientific & technical activities, administrative & support services, and information & communication.
Edinburgh and Glasgow’s dominance as Scotland’s leading growth centres will continue, as they begin to stretch further ahead of the other five cities. Both are set to outperform Scotland’s economic growth, with 2.1% growth a year between 2017 and 2020, while annual employment growth is predicted to be 0.9% and 0.8% respectively for the same period.
While this latest EY Scottish ITEM Club report is encouraging, it also highlights that Scotland still faces challenges, such as labour shortages resulting from slowing migration and the ageing of the population, and the need to drive improved performance across all seven of its cities, not just the largest two.
Improving productivity will be key to addressing challenges, which means stimulating business investment, addressing skill shortages, exploiting the use of digital technologies, and continuing to drive key growth sectors.
GDP growth in 2017 slightly stronger than previously predicted at
(compared to 0.4%)
Forecast that Scotland will experience stronger GDP growth in 2018 than in 2017 at
and an annual average growth rate of 1.7% a year to 2022.
Stronger performance is driven by household spending, forecast to grow in real terms by
– up on 2017’s 0.8% increase, reflecting growth in real personal incomes.
Private services will continue to drive growth, contributing
of the 1.4% growth in GDP in 2018 - despite accounting for just half of economic activity in 2017.
The fastest growing service sectors are likely to be;
- Professional, scientific and technical activities
- Administrative and support services
- Information and communication
Amongst Scotland’s cities, there is a noticeable gap in likely performance between the two largest and the others.
Improved growth in the Scottish economy is to be welcomed, particularly as it is expected to match that of the UK as a whole in 2018. The longer-term, five-year growth projections act as a reminder that the pace of growth comparable to the rest of the UK can be difficult to maintain and an enduring focus on how to grow Scotland’s economy must be a priority."
Scotland must ensure the country is an attractive place to live, work and do business. The extended powers available to the Scottish Government provide an opportunity to shape an environment where individuals and businesses can thrive. Ideally, government should look to support more start-ups and scale-ups and help businesses grow by attracting and retaining top talent. This would in turn generate a much more dynamic and growing tax base to deliver an increase in tax revenues."
- Mark Gregory
- Chief Economist, UK
- Mark Harvey
- Senior Partner, Scotland
- Dee Campbell
- Senior Manager, Marketing & Media Relations, Scotland
- Clare Carswell
- Media Relations Manager, Scotland