Confidence in the oil and gas industry is “starting to slowly increase” although Brexit may keep Scotland’s economic growth rates below-trend, according to a new report.
The latest State of the Economy study said that while “conditions remain challenging for North Sea producers”, there are “indications that companies believe they are approaching the bottom of the cycle, and that business confidence is starting to slowly increase”.
The report, by Scotland’s chief economist Dr Gary Gillespie, added that the North Sea upturn “may indicate that the sector will see an improved outlook in 2017, which should in turn benefit overall economic growth”.
But the report found there is considerable uncertainty about the outlook for the UK and Scottish economies following the EU referendum.
The Scottish economy continued to grow during the second half of 2016, with GDP rising and unemployment falling over the year.
However growth in the coming year is expected to be below the long-term average, with the Scottish Government forecasting growth of 1% for Scotland in 2016-17 and 1.3% in 2017-18.
Business and consumer sentiment in Scotland have been particularly sensitive to information regarding plans to exit the EU, the report found.
Business sentiment was broadly positive towards the end of 2016, particularly in the manufacturing sector which is benefiting from an increase in new orders supported by the lower value of sterling.
In contrast, consumer sentiment in Scotland weakened in the second half of 2016, with a net balance of respondents indicating they believe the economic outlook will worsen over the next 12 months.
Economy Secretary Keith Brown said: “Latest data demonstrates that the Scottish economy has continued to grow and the employment level has increased, despite the persistence of challenges facing the oil and gas sector and its supply chain.
“However while our economy is resilient, this report shows that the growth rate is below trend since the referendum and consumer sentiment has fallen. We cannot underestimate the challenges and risks facing Scotland’s economy as a result of the UK’s vote to leave the EU.”
The study found the Scottish labour market has remained resilient with the unemployment rate falling over the past year.
Latest GDP data for Scotland shows the Scottish economy grew 0.2% in the third quarter of 2016, with the pace of growth remaining stable from the previous quarter.
Scotland’s international exports (excluding oil and gas) increased £1billion (3.6%) from £27.7billion in 2014 to £28.7 billion in 2015, the study shows.
The EU continued to be Scotland’s largest single market for international exports in 2015, rising by 4.4% over the year to £12.3billion, making up 43% of international exports.
Exports to the rest of the UK stood at £49.8billion in 2015, an increase of 4.4% on the previous year.
The report said latest GDP and labour market data have followed similar patterns in the second half of 2016 as they did over the previous 18 months, suggesting any immediate impacts from the EU referendum are still to fully take effect on economic activity.
It concluded: “Longer term, the outlook remains weaker on the back of the EU referendum result, reflecting the underlying risks of a heightened level of uncertainty leading to a reduction in business investment and rising inflation weighing on real income growth and consumption.”