Scotland’s economy is likely to contract in the second half of 2022, according to researchers at the University of Strathclyde's Fraser of Allander Institute.
The Deloitte-sponsored Economic Commentary forecasts growth of 3.6% this year, followed by a contraction of -0.6% in 2023, before returning to growth of 0.8% in 2024. This is a significant revision down from the institute’s previous set of forecasts in June.
The forecasts assume that the last two quarters of the year - and the first quarter of 2023 - will show contractions in the economy due to wider challenges, meaning that Scotland is likely to be entering into a recession; as defined by two quarters of negative growth.
The institute's director, professor Mairi Spowage, said: “Consumer confidence is starting to weaken with attitudes on the outlook looking pessimistic, which has led us to reduce our forecasts for 2023 and 2024.
“Our assumption is that there will likely be contractions in the economy during the second half of 2022 and into 2023 given wider economic conditions.
“In practice, this means Scotland is likely to enter a recession.”
Angela Mitchell, senior partner for Deloitte in Scotland, said: “There is no doubt that businesses in Scotland face significant challenges over the next few years - many leaders have never navigated their people through a period of such high inflation and weakening economic activity.
“The dual blows of the pandemic and cost-of-living crisis are having a profound impact on the public sector’s spend power, while simultaneously driving huge demand for public services.
“Unlike during the pandemic, however, there is an opportunity to plan and prepare now for the months ahead,“ she continued, adding: “Business leaders will naturally want to focus on responding to the most immediate challenges, but they should also consider what they want their business to look like beyond the current challenges.”
The latest commentary also features analysis of what the UK Government’s fiscal event on 23 September could mean for Scotland.
The Deputy First Minister has committed to setting out an emergency budget soon, but announcements made by the UK Government on tax mean that there are resources available to the Scottish Government to either follow suit – or to invest the additional funding in services.
David Eiser, the institute’s deputy director, said: “The UK Government’s 'mini-budget' was anything but mini – the measures announced were very significant.
“The scale of fiscal changes - without any analysis of the sustainability of such measures - has created significant concern in the financial markets.
“John Swinney has committed to producing an Emergency Budget in late October – although we should probably expect that the decision on income tax will not be set out until the Scottish Draft Budget is published.
“We now expect the UK Government to present their Medium Term Fiscal Plan and OBR forecasts also in late October, with the Scottish Budget likely to follow before the end of the year.“
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