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Scottish economic outlook looks set for weaker growth momentum

Scotland is poised for a gradual economic recovery with steady growth predicted over the medium term, according to KPMG UK’s inaugural Scottish Economic Outlook report.

The forecast shows growth of 0.4% for the Scottish economy this year, similar to the rest of the UK, but relatively weak by historical standards, with that expected to pick up to 1% in 2025.

Risks to these numbers include potential supply chain disruptions, particularly for the manufacturing sector, but, on the upside, looser financial conditions could see a pickup in business investment and potentially stronger productivity leading to higher economic growth.

Business investment has been hurt by higher interest rates, along with earlier global supply chain disruptions. The report expects the weaker investment momentum to persist, resulting in a 1.4% fall in investment in 2024, with a modest return to growth next year as near-term uncertainties ease.

The gradual decline of the Scottish oil and gas industry adds further complexity. Declining opportunities for extraction have made investment in the UK Continental Shelf less attractive, which in turn directs less demand towards the onshore economy via the related supply chains.

Other long-term challenges relate to the economy’s productive capacity. The latest ONS population projections imply a slowing rate of population growth, with outright falls from the early-2030s. This is compounded by the effects of population ageing, which are expected to lead to a further decline in the labour force.

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