Scottish economy must ‘rebalance’

Scotland’s economy is expected to deliver below-par growth this year as previously buoyant consumer spending fades and businesses remain reluctant to invest, according to the Ernst & Young (EY) Scottish ITEM Club 2017 summer update.

The Scottish economy faces a challenging year in 2017 with growth predicted to reach 0.9% – half of the expected growth for the UK for the same period.

Mounting pressure on consumers will impact the retail sector most with spending growth expected to slow to 1.1% this year from 2.4% last year.

However, the report says there is a bright spot for manufacturing with output in 2017 predicted to grow in line with the total economy for the first time since 2013.

All manufacturing subsectors are expected to grow as weaker sterling and a pick-up in global demand ultimately provide a boost to exports.

Employment in Scotland is forecast to continue to fall by 0.1% this year, followed by further decreases of 0.5% and 0.3% in 2018 and 2019 respectively.

Mark Gregory, EY’s chief economist, UK and Ireland, said: “Scotland’s economy is showing signs of slowing faster than the rest of the UK which sends a clear message that business and government will have to work harder and smarter to achieve sustained growth. The economy has to rebalance and shift away from a reliance on public funded major infrastructure projects.

“Sector diversification is also required to help move away from an over reliance on the oil and gas, construction and financial services sectors.”

The ITEM Club is the only economic forecasting group to use the HM Treasury’s model of the UK economy.

Mark Gregory, Ernst & Young’s chief economist for UK and Ireland.