In its latest Quarterly Economic Commentary, the Institute has downgraded its 2026 growth forecast from 1.1% (February 2026) to 0.9%. Despite this revision, growth expectations remain positive over the medium term, with GDP growth forecast at 1.0% in 2027 and 1.1% in 2028.

While recent indicators suggest the economy has maintained momentum, experience from previous shocks highlights that the full effects of geopolitical disruption often emerge gradually, as pressures feed through energy markets and prices.

Mairi Spowage, director of the Fraser of Allander Institute, said: “While recent indicators have encouraged a more optimistic narrative around Scotland’s growth prospects, it would be premature to assume this momentum is secure.

“The conflict in the Middle East reminds us how quickly geopolitical risk can translate into economic pressure, particularly through energy markets.

“At a time when UK inflation had begun to stabilise and the economy was showing signs of recovery after several challenging years, this renewed shock means the outlook remains highly uncertain, with many of the potential impacts yet to be fully reflected in the data.

“The experience following Russia’s invasion of Ukraine in 2022 should remain fresh in our minds. That period demonstrated how prolonged disruption to oil and gas markets can drive inflationary pressures, tighten financial conditions, and ultimately weigh on economic growth. The lesson for Scotland is not that a downturn is inevitable, but that today’s positive outlook must be approached with caution.”

The latest edition of the Commentary also reflects on the Institute’s recent podcast series produced in partnership with Deloitte, which explored how Scotland can unlock stronger long‑term economic growth. Topics included the future role of artificial intelligence, opportunities within the digital economy, and the importance of addressing skills gaps across Scotland.

Angela Mitchell, practice senior partner for Scotland and Northern Ireland, Deloitte, said: “Scotland’s underlying strengths remain clear, strong academic institutions, a skilled workforce, and abundant natural resources with huge opportunities in renewables. The questions are less about identifying opportunity and more about how quickly and consistently it can be realised.

“Our podcast series with sector leaders and experts has explored the topics that will shape Scotland’s future. It has underlined the importance of businesses and policymakers working together to create stable policy environments, invest in crucial infrastructure, and nurture the talent pipeline.”