Scotland’s Gross Value Added (GVA) is expected to rise by 0.4%, down from previous forecast of 0.7%, but longer-term prospects remain encouraging, according to the EY ITEM Club Scottish Spring forecast.
Forecasts for Scottish GVA are now stronger for 2025, at 1.7%, compared to 1.4% last quarter, “with sustained growth expected in following years,” said EY.
Total employment is forecast to grow by an average of 0.8% a year over the 2024-2027 period. Employment growth at this level will see Scotland lagging the UK average, which is expected to grow by an average of 1.1% over the same period, EY said.
EY Scotland Managing Partner for Financial Services Sue Dawe said: “Scotland’s employment is expected to rise as conditions improve through the year with sustained growth both this year and next.
“While this is welcome news, Scotland’s employment is predicted to lag the UK average.
“Differences between Scotland and UK’s employment growth prospects, in part, relates to underrepresentation in certain sectors that are expected to see stronger employment growth in the future.
“Our report predicts demographics will continue to play a key role in determining the scale of future jobs growth which shows why a competitive advantage is so important in attracting a highly skilled workforce.
“That’s why having a shared vision, like the Scottish financial services growth strategy, is fundamental to constructive collaboration across industry and government, and the sector looks forward to deepening that dialogue with the incoming new government.”
EY Scotland Managing Partner Ally Scott said: “As the Scottish business community anticipates a policy reset from new political leadership, our forecast shows the economy remains marginally behind, but largely tracks, trends we see at a UK level.
“The deterioration at the end of the year was most strongly felt in the manufacturing sector which suffered a sharp decline in Q4, and while the services sector was largely flat overall, some private service activities show signs of improvement.
“Households and some business sectors appear to be gaining optimism about the year ahead, but recovery in household finances and spending will take time to feed through into growth.
“GVA growth is forecast to be weak this year but momentum is predicted to build for a brighter outlook for 2025 and beyond.
“While political distraction and instability is never welcome within the business and entrepreneurial community, Scotland currently has an opportunity to reset the sluggish trajectory of what many of our reports imply and set a functional, pro-growth business agenda that can enable and accelerate a more vibrant and sustainable economy for the longer-term.”
In its “sector outlook” EY said GVA for both accommodation & food and wholesale & retail is forecast to expand in 2024, but growth is expected to be considerably stronger in 2025 as consumer confidence and spending gathers pace.
The administrative & support sector is expected to continue to build throughout the year, reaching 2.4% in 2025, with transport & storage also responding to the uptick in activity (2.7%).
“Generally, private services sectors are expected to come to the fore in 2025; professional, scientific, & technical services should strengthen, and the information & communications sector should return to growth after a loss of output forecast for this year,” said EY.
“Public sector services should continue to support Scotland’s growth this year, and GVA from public administration & defence (which accounts for 7% of total Scottish GVA) is expected to be one of the fastest growing sectors, expanding by 2%.
“However, public finances are set to tighten, and this is likely to result in a small contraction in public administration GVA next year.
“Sustained growth is expected in health & social work as it continues to respond to post-Covid-19 demand, expanding by 1.5% in 2024 and 1.1% in 2025.
“Prospects for the education sector are much weaker, and GVA growth for the sector is expected to lag the economy-wide average both this year (0.3%) and next (0.2%).
“The forecast for construction has been downgraded (now down 1.6%), reflecting the sector downturn at the end of 2023 and an expectation that interest rate reductions will take time to filter through to increased activity.
“Construction activity should rebound as the year progresses with prospects much brighter for 2025 (up 3.1%%).
“Manufacturing has improved in the latest forecasts as the prospects for Scotland’s major international trading partners have become more promising.
“Within the manufacturing sector, the brighter international outlook favours Scotland’s exporting sectors, particularly transport equipment, chemicals, and pharmaceutical products, alongside the drinks sector.”