Glasgow is predicted to be the fastest growing city in Scotland over the next three years (2024 – 2027) with an average gross value added (GVA) growth rate of 1.9%, matching the UK average GVA growth rate, according to the latest EY Regional Economic Forecast.
The report said Scotland’s fastest growing sectors in terms of GVA growth from 2024 to 2027 are expected to be information and communication (8.8%), energy (8.51%) and construction (6.84%).
“Glasgow is experiencing an expansion in its professional services sector, coupled with an increase in productivity (in terms of GVA per worker) which is driving growth,” said the report.
“Edinburgh ranks a close second at 1.8%.
“Two of the slowest growing cities are predicted to be Dundee at 1.4% and Aberdeen at 0.8% – the latter ranking lowest in the UK.
“This is likely explained by challenges in the oil & gas sector, upon which Aberdeen’s economy is heavily reliant, including the long-term decline in North Sea Oil production.
“Policy has also played a part as the introduction of the windfall tax continues to act as a barrier to investment in the sector.”
The EY report said Scotland’s labour market remains the focus for performance and economic outlook.
The forecast says that understanding regional differences in labour markets, and steering policy makers at both local and national level to address these differences, will be vital to supporting Scotland’s future economic growth.
“This could include incentivising those who have left the labour market back into employment to address some of the structural challenges as well as ensuring that re-skilling is focused towards sectors where demand for labour will be the greatest, including information and communication,” said the report.
The EY forecast said average employment growth rate in Scotland between 2024 and 2027 is expected to be 0.8%, with the UK national average at 1.1%.
According to the report, Scotland’s employment prospects are dampened by weak demographic growth, its rate of economic inactivity (19.6% for 2023), and tighter fiscal policy.
EY said: “The Annual Population Survey (October 2022 to September 2023), published in the latest Scotland EY ITEM Club Forecast, shows that long-term sickness appears to be a considerable reason for economic inactivity in Scotland, accounting for almost 32% of inactivity, compared to 27% in the UK.
“Early retirement also appears more significant at 14.0%, compared to 12.7% for the UK. Relatively high inactivity in Scotland is likely to be constraining employment growth and company recruitment activity.
“Over the longer-term, demographic trends play a key role in determining the scale of future jobs growth and, in turn, the country’s economic prosperity.
“According to the latest Scotland EY ITEM Club Forecast, the population growth in Scotland is expected to be relatively weak, with migration only just offsetting the decline from natural change (births minus deaths).
“Tighter UK policy on immigration is also expected to impact the population outlook for Scotland, which is somewhat weaker than the UK average – largely as a result of lower net migration.”
Sue Dawe, EY Scotland Managing Partner for Financial Services, said: “To sustain economic growth over the next three years, it will be crucial for Scotland to have a talented and robust workforce in place – one that is ready to up-skill, re-skill and adapt.
“For the Scottish Financial Services sector, retaining and attracting new talent will play a large part in the success of the sector’s growth strategy.
“People need to be incentivised to stay in Scotland, while attracting new external candidates, into what should be a successful and rewarding place to work.
“But Scotland can only achieve its full potential with the right policies and incentives in place.
“This is a forecast rather than a score card and only with the correct mix of interventions and policies can Scotland hopefully avoid the worst of what’s predicted.”