A new report predicts Aberdeen will have the least economic growth of any UK city in the next three years.
Aberdeen may see the slowest gross value added (GVA) of just 0.9% according to the EY 2025 regional economic forecast.
It is also bottom of the chain for negative household income growth, averaging -0.4% from 2025 to 2028.
So, what do these figures mean? Is the city facing an economic crisis? If so, why and what can be done?
Breaking down the report
GVA measures the value of goods and services produced by an economic sector after deducting the cost of inputs used in that production process.
Aberdeen is the only city in the UK which is anticipated to see less than 1% of growth in the next three years.
Its negative average household income is also a stark contrast to other UK cities.
However, the slow employment growth is on par with Scotland – with just 0.4% of growth anticipated.
The report said the prediction of the “lowest performing city” comes due to a contraction in the energy sector.
It also believes limited growth in the professional services will add to its problems.
The “long-term decline” in North Sea oil production is expected to pose a significant economic challenge for Aberdeen.
The report states: “Aberdeen is uniquely exposed to the decline in oil and gas extraction.
“New investments in renewable energy are yet to, and may never fully, replace the lost activity and employment.
“One that may be further weighted to the downside, given the changed geopolitical trajectory since the new US administration took office.”
Barriers to Aberdeen growth
EY Aberdeen senior partner Moray Barber believes Aberdeen needs to maintain a “competitive advantage” on growth.
He also thinks both the UK and Scottish governments have mixed feelings towards new investment in oil and gas production.
He said: “The extension of the Energy Profits Levy (EPL) to 2030 has also acted as a barrier to investment.
“Aberdeen continues to acutely feel the uncertainty over the UK’s energy future, and we’re seeing the reality of the resulting lack of confidence in these figures.
“The Chancellor’s upcoming spring statement, as well as the recently announced consultation to a successor regime to the EPL, is an opportunity to reset and offer some much-needed assurance.”
Mr Barber believes a true energy transition and revolution may be needed in the near future.
He added: “Without it, then local jobs, our vibrant supply chain economy and the very future of the UK’s energy security continues to hang in the balance.”
Is oil and gas behind potential Aberdeen growth problems?
There’s been plenty of changes and developments in Aberdeen’s oil, gas and energy sectors in recent times.
US oil firm Apache revealed plans to exit the North Sea by the end of 2029, blaming windfall tax.
It said changes to the Energy Profits Levy (EPL) meant it couldn’t continue to invest in its North Sea assets.
The firm will run a “very limited capital programme” in the North Sea next year, before assets are decommissioned.
Apache first entered the North Sea in 2003, taking control of the Forties field.
Meanwhile, Shell and Equinor announced a joint venture creating the UK’s largest oil and gas operator – headquartered in Aberdeen.
The firms announced plans to combine their UK North Sea assets into a new company, subject to regulatory approval.
They said it will allow “continued economic recovery of this vital UK resource”.
The joint venture is predicted to produce more than 140,000 barrels of oil equivalent per day next year.
The firms, who will hold equal stakes in the new company, estimate approvals will be delivered by the end of 2025.
Have Wood Group and GB Energy played their part?
Aberdeen engineering firm Wood has seen its value plummet, dropping from £5 billion to £200 million in less than a decade.
Since 2017, failed takeover attempts, job cuts and plunging profits led to its share prices dropping by more than 95%.
It was also announced GB Energy would be headquartered in Aberdeen – and the publicly funded firm now has its chairman in Juergen Maier.
At first, it was said 1,000 Aberdeen jobs could be created – however targets were changed and it was admitted it could take up to 20 years.
Mr Maier confirmed the HQ for the new publicly-owned energy firm will open this year in Aberdeen, with recruitment underway in the city.
He attended GB Energy’s first ever board meeting in Aberdeen to discuss the next steps to scale up the firm’s presence in the city.
What needs to change?
Aberdeen & Grampian Chamber of Commerce policy advisor Fergus Mutch believes “poor policymaking” has put a stranglehold on growth.
He said: “The north-east of Scotland has been an economic powerhouse for decades.
“Driving economic growth and activity through the energy industry, a world-class supply chain and the high-value service sector it supports.
“Regrettably, recent years of poor policymaking and a punitive North Sea tax regime has put a stranglehold on growth.
“A damaging windfall tax on energy firms has been extended and increased, despite windfall conditions no longer existing.
“The result has been investment decisions paused indefinitely, thousands of jobs lost and business confidence at its lowest ebb.
“We’re witnessing a complete reversal in the region’s economic fortunes, dragging Scotland’s overall performance down in the process.
“This doesn’t just effect oil and gas businesses, but a much wider extended supply chain.
“Including retail, hospitality, hotels, professional services businesses, transport providers and more, putting this area at huge risk.
“This cannot be sustained if the UK- and the north-east in particular- are to have any hope of delivering a well-managed energy transition and the economic growth that we desperately need.”
Does Aberdeen have positive prospects?
Despite the report, Aberdeen has seen plenty of investment in recent times and could expect more soon.
The new £27m One SeedPod centre in Aberdeen will open for business next month.
The building, which has brought some attention due to its bright pink colour, was officially launched today ahead of opening to the industry.
The 30,000 sq ft new build includes 11 food-safe manufacturing kitchens, product development and demonstration kitchens, and pilot plant and process testing spaces.
2023 saw a tourist boom for the north-east and Aberdeen and with upgrades to Aberdeen Airport and Port of Aberdeen last year there’s no reason this couldn’t continue.
There’s belief a “mega-project” to build a new £300m stadium in Aberdeen could attract huge private investment in the beachfront facelift.
A new market, Flint, is undergoing construction as part of the multi-million-pound redevelopment of the city centre.
Oil and gas also won’t be going away – at least not in the near future. Offshore Europe will return to The P&J Live this year, bringing thousands of visitors to the region.
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