The Scottish economy should see a return to calendar year growth in 2024 with Gross Value Added (GVA) rising by 1.6%, helped by a 2.3% increase in consumer spending as employment and “real wages” recover.

That’s according to the latest EY ITEM Club’s Scotland Forecast.

The EY ITEM Club estimates that Scotland’s GVA rose 5.3% in 2022, a slowdown from 7.9% in 2021, with 2022’s growth concentrated in the year’s first half.

The report said Scottish GVA is anticipated to fall by 0.6% in 2023, with decline largely concentrated in the first half of the year.

Some sectors can expect to see growth, led by health and social care (1.2%), education administrative and support services (1.1%), and public administration (0.8%).

Based on the latest forecast, it will be 2025 before Scotland’s GVA is expected to finally climb above where it was pre-pandemic.

Ally Scott, EY Scotland Regional Managing Partner said: “While challenging conditions are expected to stretch into the summer of 2023, we are starting to see signs in a number of areas which give cause for optimism – energy prices are falling and the economy has proved to be more resilient than expected.

“A return to calendar year growth is forecast in 2024, but Scotland will continue to face some long-term challenges in demographics, such as the profile of our working-age population.

“However, there are also some exciting opportunities that must be grasped if Scotland is to catch the next bounce of the ball in terms of local economic growth.

“Growth opportunities can be created by building on Scotland’s world-class strengths in financial services, life sciences, software and technology.

“There are also clear natural advantages in navigating the transition to net zero – by industry and society – using established and emerging skills to move from traditional hydrocarbons and towards clean energy and renewables.

“It’s important we create an economic environment which inspires confidence to invest and grow differentially once more.

“We know this can generate strong positivity across Scotland, especially when coupled with our high attractiveness – both globally and within the UK – as a place to live, work and do business.”

Sue Dawe, Head of Financial Services for EY Scotland, said: “Conditions have been up-and-down since the middle of last year, and it’s anticipated that consumers will make more use of savings accumulated during the pandemic throughout 2023.

“However, net savings are a diminishing asset, especially in a year in which borrowing has become very expensive due to higher interest rates.

“That said, recent declines in some prices suggest that inflation will weaken during this year, and if it falls as quickly as the EY ITEM Club expects, there is a good chance interest rate cuts may be on the menu by the end of this year.

“As always, Scotland’s financial services sector will continue to work with businesses and communities to support them through headwinds and maximise the opportunities available as we work together towards economic growth.”