Scotland’s economy will continue to shrink throughout most of this year as inflation continues to cause “difficult” times for households, says a report.
The gloomy outlook is in the latest economic commentary from Strathclyde University’s Fraser of Allander (FoA) Institute.
A “challenging period” to come in the spring for consumers and businesses as government support for energy bills is rolled back has prompted the think-tank to forecast a 1% contraction of the economy this year.
Scotland is not expected to get back into growth mode until later in the year, with FoA also forecasting 0.6% expansion for 2024.
And the Deloitte-sponsored report warns that even if inflation falls towards the end of this year, as experts predict, positive effects for households will not be felt right away.
Prices likely to stop rising but they won’t fall
FoA director Mairi Spowage said: “High inflation is continuing to impact the outlook for the economy, and we still expect there is likely to be contraction in growth during the first three quarters of 2023.
“This means the economy will be smaller at the end of 2023 than at the start of the year.
“More positively, we agree with many other forecasters there is likely to be growth in the economy towards the end of the year as inflation comes down.
“However, we need to remember this only means prices stop rising quite as quickly.
“It does not mean prices will start to fall. Things are likely to remain difficult for households throughout 2023.
“The outlook, though, is exceedingly uncertain, and there are a number of risks to the forecasts – many of which are to the downside.”
Upskilling is key
The institute assumes “slight growth” in Scotland’s economy during the final quarter of 2022, following a dip in Q3.
Three consecutive quarters of contraction are expected in 2023.
Growth is predicted to return in the final quarter of 2023, bringing an end to a long recession.
Deloitte partner Douglas Farish said: “While many will continue to struggle with hiring, upskilling the existing workforce will be key.
“Businesses must also consider how they can cut their energy consumption, especially as the Energy Bill Relief Scheme is to be replaced in the coming months, if they are to truly futureproof their operations into 2024 and beyond.”
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