Forecasts of the Scottish Economy [March 2015]

Despite growth slowing in the final half of 2014, it still appears likely that the Scottish economy grew in 2014 at a faster rate than in any year since 2007. The outlook for continued growth remains mixed however, though survey indicators indicate relatively strong investment signals. It is likely that household spending and investment will contribute positively to growth through 2015 as real incomes rise due to a combination of falling energy prices, some signs of wage increases and increasing employment. For these reasons, we have revised up our forecasts for growth in 2015 and 2016 to 2.6% and 2.4% respectively (from 2.2% and 2.1%). There remain significant downside risks including a likely (perhaps brief) period of deflation in the first half of 2015, continued slow growth in Scotland’s major European trading markets and the existential possibility of Greece exiting the Euro – which while not likely to have a direct impact on the Scottish economy, e.g. through exports, would have implications through Scottish banks and wider exposure to European markets.