EY warns of slow growth but pick up next year
The EY Scottish ITEM Club has forecast growth in Scotland coming to a virtual standstill as a result of the oil price slump.
It is predicted that economic growth in Scotland will slow to a crawl in the coming year as the impact of the North Sea oil price decline impacts on the wider economy.
EY has slashed its prediction for growth in gross domestic production this year to 1.2 per cent from the predicted 1.8 per cent six months ago, as a direct result of oil prices being estimating to stay much lower for longer.
The continuous downturn in oil prices has lead oil companies to slash jobs and investments, impacting on the wider economy, hitting firms in other sectors such as engineering and financial services.
Providing, that conditions in the oil and gas sector do not deteriorate further, EY estimates a rise in growth in Scotland by 0.8 per cent in the next year.
However, it believes the pace of growth this year will be the slowest since 2012, when the country was emerging from the slump triggered by the global financial crisis.
“While undershooting UK growth is a familiar pattern for Scotland, the forecast growth gap in 2016 is much larger than has been typical in the last few years,” said Dougie Adams, senior economic adviser to the EY Scottish ITEM Club.
The number of people in work has fallen in Scotland since late 2014 but increased in the UK.
Mr Adams further noted that the growth in the construction sector has boomed as major works which have supported the countries growth are near completion.
With this in mind, the result of the North Sea decline leaves the Scottish economy entirely reliant on consumer spending.
On Friday, Brent crude was at close to $50 a barrel. Industry body Oil and Gas UK has estimated that around 20 per cent of UK production is uneconomic at a $50-per-barrel oil price.
However, Mark Harvey, EY senior partner for Scotland, said: “From next year the country is poised for a significant increase in GDP growth with Scotland’s cities making a considerable contribution.”
He said investment and development opportunities are the key to recovery and growth of Scotland’s economy.
“Scotland is an attractive investment proposition demonstrated by the record-breaking level of inward investment projects achieved in 2015,” added Mr Harvey.
The ITEM Club expects better growth in Scotland’s exports in 2017, although conditions in global markets are challenging.