Economic outlook more optimistic after ‘stuttering’ year in 2023, experts say

The outlook for Scotland’s economy in 2024 is “more optimistic”, experts have said after a “disappointing” performance in 2023.

Professor Mairi Spowage, director of the Fraser of Allander Institute think tank, said while economic growth had been “hard to find” last year, “thankfully” Scotland had not fallen into recession.

Looking ahead to 2024, she said that “signs are more optimistic”, noting that interest rates may have now peaked and could fall over the course of this year.

She spoke out as the Fraser of Allander Institute published its latest economic commentary, with experts there predicting Scotland’s economy will grow by 0.6% this year, with this then increasing to 1.1% next year and 1.2% in 2026.

While this is “slightly weaker” than its earlier forecasts – with experts having forecast in December that the economy could grow by 0.7% this year and 1.3% in 2026 – the report stressed “it still points to improving conditions in the economy over the course of this year”.

As a result, the Institute said: “We are starting off 2024 in an atmosphere of cautious optimism for the year ahead.”

That comes after a “year of stuttering growth” in 2023, with the report warning  Scotland is likely to see its economy shrink in both the second and final quarters of the year when all the data is in.

The report added that overall “Scotland is not too far behind the UK” in terms of its economic recovery from the Covid pandemic.

“Scotland is 1.7% above pre-pandemic levels as at Q3 (quarter three) 2023, whereas the UK as a whole is at 1.9% above,” the report noted.

Speaking about Scotland’s economic performance, Prof Spowage said: “Growth in 2023 has been hard to find, and we expect that the year as a whole will show very little growth.

“This is disappointing – although we should remember that we were expecting a year ago that we would fall into recession in 2023, which thankfully did not happen.”

She added: “Signs are more optimistic for 2024.

“As well as businesses and consumers indicating that they feel more positive, the Bank of England has also signalled that interest rates are likely to have peaked – raising the prospect of rate cuts over the course of the year.”

Angela Mitchell, senior partner for Scotland  at the report’s sponsors, Deloitte, said the latest economic commentary “paints a mixed picture of Scotland’s current economic position”.

Ms Mitchell said: “Although growth in 2023 was weak and near-term challenges remain, there are distinct reasons for cautious optimism.

“Deloitte’s latest chief financial officers survey found that the UK’s finance chiefs are starting the year in relatively positive spirits, with sentiment among them rising for a second consecutive quarter and running at well above average levels.”

She added: “Overall, a bolstered sense of confidence among both businesses and consumers has signalled a positive start to the year, and an anticipated fall in inflation and return to growth are very much within sight.”

Wellbeing Economy Secretary Neil Gray said: “It is encouraging that these latest forecasts point to improving economic conditions and growth in Scotland over the coming year. Unemployment remains extremely low and we are seeing a return to positive real wage growth across our economy.

“The Scottish Government is acutely aware of the enormous pressures facing businesses and is taking decisive steps to offer support within limited powers and a challenging budget.

“This includes up to £500 million to support the offshore wind industry and help create thousands of green jobs, funding for improved connectivity for businesses and residents across Scotland and techscalers creating and developing start-ups.”