Forecasts of the Scottish economy [November 2015]

In the second quarter of 2015, the Scottish economy recorded its lowest rate of growth since the third quarter of 2012. There was higher than expected growth in the Construction sector (3.5%) in this most recent quarter, however the much larger Service sector recorded flat output and the Production sector contracted by -0.8%. Going into the second half of 2015, we find many indicators continuing to suggest growth continuing, however these are at or below historical standards. Survey evidence suggests that those factors which assisted growth in the first two quarters of 2015 – such as infrastructure investment – look less strong in the second half of the year. With new evidence about the weakness in Scottish growth in the second quarter of 2015, we have thus revised down our forecast for growth in 2015. The outlook for 2016 remains muted, with global economic growth anticipated to ease as a result of policy actions – e.g. a likely gradual increase in US interest rates - and uncertainty about the strength of growth across major emerging economies. These developments are likely to impact upon Scottish exports over the coming years. The labour market continues to create jobs, and we forecast a continued reduction in the unemployment rate over the next two years, albeit at a slower rate than we forecast earlier in 2015