State of the Economy

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1 State 1 of State the Economy of the Economy June 2016 Office of Ril the - Junt Chief pr Economic f Adviser June 2016 State of the Economy Dr Gary Gillespie Chief Economist 3 June 2016 State of the Economy This presentation outlines recent developments in the global, UK and Scottish economies. Updates are provided on a periodic basis. Data correct up to and including the 3 June To view previous State of the Economy presentations please visit the following link: Feedback and comments on this presentation are welcome and can be provided using the address below:

2 2 State of the Economy June 2016 Overview The Scottish economy has been resilient over the past 12 months in the face of the most challenging external economic conditions in recent years. With annualised growth of 1.9 per cent recorded for 2015, the pace of expansion in the Scottish economy was significantly below the growth rate of 2014, reflecting the impact of a number of external factors lower global commodity prices which impacted on the oil and gas (and related Production) sectors, more difficult trading conditions for exporters with Sterling appreciation and weaker global markets and sentiment which have impacted on a number of foreign-owned plants in Scotland. The impact of these external pressures was felt most in the Production sectors and related supply chains and in particular regions of the economy (North East), which had led to a more mixed and muted pattern of growth within Scotland during this period. This is evident through the labour market and patterns of employment gains/losses through-out Scotland. However, the Service sector in general, which accounts for nearly 80 per cent of output in Scotland, benefited from lower input (energy) costs which coupled with improving household finances has supported growth in this sector through Similarly, the Construction sector also continued to make a significant contribution to growth during 2015 with high levels of public infrastructure (and related) investment being maintained. At the aggregate level, both of these sectors helped mitigate the impact of the contraction in the Production and oil related activity, which contracted over this period in response to external conditions and the impact of major restructuring in the Oil and Gas sector and supply chain, which led to a significant reduction in operating expenditure and investment during This led to job losses and a significant reduction in new investments related to exploration. These were driven by the low oil price which reached a low of sub-30 dollars in January 2016 although has since rebounded to touch 50 dollars this month. The on-going restructuring of this sector will be impacted by the outlook for prices and the profitability of production. Despite this backdrop, the Scottish economy achieved record levels of employment during 2015 reflecting the growth in Services and the lag in employment from the downturn in Production and related activity. The labour market remains resilient, though the most recent data indicate a slight fall back in employment levels and unemployment stabilising at around 6 per cent. Looking ahead, the Scottish economy is forecast to continue growing through both 2016 and 2017 with the external environment still uncertain and impacting in However the attractiveness of the Scottish economy remains strong for business growth and inward investment, which will present continuing opportunities both in the short and medium term as areas impacted by external factors rebalance and create new opportunities.

3 3 State of the Economy June 2016 Global Summary Global economy remains subdued Global conditions remain finely balanced. Whilst economic growth in many countries remains close to trend, the slowdown in some emerging economies alongside subdued growth in advanced economies has weakened global trade and increased financial market volatility. Commodity prices remain low Commodity prices remain low compared to recent years, primarily reflecting reduced demand in emerging markets and over supply. The oil price has also been affected on the supply side by Iranian supplies re-entering the global market after the lifting of sanctions and no agreement amongst oil producers to coordinate a slowing of output. Over the past eighteen months the falling oil price has presented both opportunities and challenges for the global economy. For oil producing economies, it has led to declines in investment and profits leading to reduced growth prospects and strained fiscal positions. However, for many advanced economies, and large commodity importers such as India, the fall in commodity prices has reduced inflation and in turn supported lower operating costs for businesses, real wage growth and household consumption. Global market volatility driven by global uncertainty Increased volatility in financial markets observed during 2015 has continued into Initial market volatility in 2015 arose due to the uncertainty surrounding US interest rate normalisation and sharp movements in the Chinese stock market. Moving into 2016, a general weakening of expectations for the global economy has led to further uncertainty across financial markets.

4 4 State of the Economy June 2016 US and Euro Area growth stabilises The recovery in the Euro Area continued at the start of 2016 with GDP expansion of 0.5% in Q1, after growth of 1.5% during In the US, growth slowed to 0.2% in 2016 Q1, after robust domestic demand drove growth of 2.4% in Net trade remained a drag on growth in both economies as weak global demand reduced export volumes. This was exacerbated in the US by the relative strength of the dollar making its exports less competitive. Slowdown in China drags on global growth In 2015 China s economy experienced its slowest year of growth (6.9%) since This reflected weaker investment and manufacturing activity as China continues to rebalance towards more consumption and service-led growth. Slowing growth in China is a key factor behind the weakening outlook for emerging economies. Asian economies in particular have been affected by reduced export demand. Commodity exporters, such as Brazil and Russia both experienced recessions in 2015 due to their exposure to continued low commodity prices. Some emerging markets, particularly in South America, are also vulnerable to sharp exchange rate movements arising from global financial market instability due to high levels of foreign currency denominated domestic debt. These developments are impacting the global economy through reduced demand, affecting both global trade and commodity prices, and increasing volatility in financial markets. Economic outlook positive but headwinds remain The IMF recently revised down its 2016 world growth forecast from 3.4% to 3.2% highlighting that risks to future growth remain tilted to the downside, particularly in emerging market and developing economies. GDP Growth Forecasts Revisions from Previous Forecast IMF WEO (April 2016) World Output 3.1% 3.2% 3.5% Advanced Economies 1.9% 1.9% 2.0% United States 2.4% 2.4% 2.5% Euro Area 1.6% 1.5% 1.6% United Kingdom 2.2% 1.9% 2.2% Japan 0.5% 0.5% Emerging Markets 4.0% 4.1% 4.6% China 6.9% 6.5% 6.2% India 7.3% 7.5% 7.5% Brazil -3.8% -3.8% 0.0% Russia -3.7% -1.8% 0.8% South Africa 1.3% 0.6% 1.2%

5 5 State of the Economy June 2016 United Kingdom Summary Growth eased at the start of 2016 UK GDP is estimated to have grown by 0.4% in the first quarter of 2016, compared to 0.6% in Q This was driven entirely by expansion in the Service sector (0.6%), as there was a contraction in both the Production (-0.4%) and Construction (-0.9%) sectors. Growth over 2015 was estimated to be 2.3%. This growth has been driven primarily by household consumption, supported by the low inflation environment boosting real incomes. Throughout 2015, the growth in consumer spending was partly offset by subdued UK trade resulting from the relatively strong value of sterling and weak demand from UK export markets. Labour market indicators remain strong The employment rate in the UK increased in the latest quarter (Jan-Mar 2016) to 74.2% - the highest rate since records began. The unemployment rate (5.1%) remained unchanged in the latest quarter, down from 5.6% over the year. The labour market tightening over 2015, combined with the low inflation environment, has led to sustained increases in real earnings, which increased by 1.4% over the year to March Forecasters expect growth to continue in 2016 Forecasters expect UK growth to be sustained in 2016, although below its historical average, at 2.0%. This reflects global uncertainties impacting upon UK trade and concerns about muted productivity growth. Market expectations of an interest rate increase by the Bank of England have been delayed to This reflects the low level of inflation (0.5% in March) dampening prospects for significant wage settlements and the weak outlook for global growth.

6 6 State of the Economy June 2016 Scotland Summary Rate of economic growth slows Scottish GDP grew by 1.9% during This growth was driven by the construction and service sectors, whilst output in the production sector contracted. Within the latter, manufacturing has been hit by low export demand and low oil prices impacting on the oil and gas industry supply chain. The GDP data also shows that the pace of growth slowed throughout During Q3, GDP contracted by 0.1% compared to the previous quarter. Whilst GDP grew again in the final quarter, the rate of growth remained subdued (0.9% on an annual basis) compared to the start of the year (3.1% on an annual basis). Challenges in the economy impact on the labour market indicators The latest Scottish labour market data (Jan-Mar 2016) show that the employment rate fell by 1.3 percentage points over the year. Despite this, there are still 141,000 more people in employment than the post-recession low. Over the year the unemployment rate in Scotland increased by 0.2 percentage points to 6.2%. Labour market inactivity, those not in work or not actively seeking work, rose by 44,000 over the year to 752,000. Forecasts (Annual GDP %) Fraser of Allander Institute (March 2016) Continued growth forecast despite external headwinds Annual growth of 1.9% in 2015 is forecast to be followed by similar moderate growth rates in 2016 and 2017 averaging around 1.9% and 2% respectively. Scottish ITEM Club (December 2015)

7 7 State of the Economy June 2016 Summary of 2015 Scottish Economy Output The Scottish economy grew by 1.9% during However, the pace of growth slowed across the year following robust annual growth of 3.1% to Q1 2015, the pace of growth slowed to annual growth of 0.9% to Q Growth of 0.2% in the final quarter of the year, remains below Scotland s trend rate and followed a contraction of 0.1% in Q3. Sectoral Trends There were some positive trends across sectors in Q4 2015, with several sectors experiencing a slight increase in the pace of growth over the quarter. However, on the whole, growth remained weak, with some sectors facing a slowing in the pace of expansion whilst others experienced contraction. Quarterly Growth Scot UK Annual Growth Scot UK (Q4-on-Q3) (Q4-on-Q4) Service Sector Service Sector Distribution, Hotels & Catering Distribution, Hotels & Catering Transport, Storage & Comms Transport, Storage & Comms Business Services & Finance Business Services & Finance Government & Other Services Government & Other Services Production Sector Production Sector Mining & Quarrying Mining & Quarrying Electricity & Gas Electricity & Gas Water Supply & Waste Mgmt Water Supply & Waste Mgmt Manufacturing Manufacturing Construction Construction Agric., Forestry & Fishing Agric., Forestry & Fishing

8 8 State of the Economy June 2016 Service sector growth was 0.3% in Q4 2015, following growth of 0.2% in the previous quarter. This was largely driven by growth across the Transport, Storage and Communication sector and the Business Services and Finance sector reflecting a pick-up in activity towards the end of the year. Production output marginally contracted by 0.1% in the fourth quarter, the third successive quarter of negative growth for the sector. This was primarily driven by a 2.3% contraction in the Mining and Quarrying sector reflecting weakening conditions in the oil and gas supply chain. This offset the 0.3% growth observed in Manufacturing, its first quarter of growth in The weak growth in Manufacturing reflects the negative impacts on exporters of subdued global demand and the relative strength of sterling. Furthermore, the low oil price is continuing to have a negative impact with the metals sub-sector contracting by 1.5% over the quarter, in part driven by reduced demand for oil supply products. Encouragingly, there was strong growth in both the Food and Beverages sector (1.6%) as well as the in the Refined Petroleum, Chemical & Pharmaceutical Products sector (5.3%). The Construction sector continued to grow in the fourth quarter (0.1%) but, as expected, the pace of growth slowed further following the very rapid expansion in output recorded in 2014 and the start of The growth in the Construction sector at the start of 2015 was supported by public infrastructure investments and a combination of public and private infrastructure investments is expected to drive growth in the sector going forward through Expenditure Drivers of Economic Growth Recent Quarterly National Accounts Scotland 1 (QNAS) data provides an estimate of the expenditure drivers underpinning nominal GDP growth over It shows that household consumption was the largest contributor with robust growth over the year in the communication, culture, restaurants & hotels and transport subsectors. As with the UK as a whole, this growth in 2015 has been supported by record levels of employment, sustained real wage growth and positive consumer sentiment, all of which have provided a boost to household disposable incomes. Investment continued to make a significant contribution to nominal GDP growth over 2015, driven to a large extent by the recent strength of the construction sector. Meanwhile, net trade continued to act as a drag on nominal growth over the year as highlighted above. 1 QNAS figures are expressed in nominal terms and, unlike GDP growth, are not adjusted for price changes.

9 9 State of the Economy June 2016 Index of Manufactured Exports International manufactured exports Manufactured Export Volumes, Q4 grew by 0.6% during (sector by weighting, largest first) However, in the final quarter they contracted by 1.5% compared to the previous quarter. The quarterly contraction was mainly driven by falls in export volumes from the two Refined Petroleum, Chemical & Pharmaceutical Products largest sectors: Food, Beverages Non-metallic Products, Other and Tobacco (-4.9%) and Manufacturing & Repair Engineering and Allied Industries (- 1.8%). Furthermore, following on from a significant contraction in Q3, exports from the Metals and Metal Products sector fell a further -4.6% in the final quarter reflecting the fall in demand from the oil and gas sector. Across 2015, whilst international manufactured exports have marginally increased, by 0.6%, this growth has weakened compared to recent years. Encouragingly, the Refined Petroleum, Chemical and Pharmaceutical Products sector has recorded strong growth in exports over the year (10.0%) alongside export growth from the Textiles, Clothing and Leather sector (1.9%). However, there has been a contraction in exports from all other sectors over 2015, which for the Engineering and Allied Industries, Metal and Non-metallic Products, reflects the fall in demand from the oil and gas sector, and for the other sectors, the challenging conditions in their export markets of subdued global demand and a relatively strong value of Sterling. Export Statistics Scotland 2014 Results 2 Published on 27 January 2016, these statistics measure total Scottish exports to the rest of the UK and the rest of the world. The value of international exports from Scotland in 2014 was 27.5 billion, a 3.2% nominal decrease on Meanwhile, Scottish exports to the rest of the UK stood at 48.5 billion, a 3.2% nominal increase on the previous year. Quarterly Growth (%) 4Q-on-4Q Growth (%) Total Manufactured Exports Engineering & Allied Industries Food, Beverages & Tobacco Metals & Metal Products Wood, Paper & Printing Textiles, Clothing & Leather Source: Index of Manufactured Exports, Scottish Government Europe and the United States remained Scotland s largest international export markets. Over the year, the value of exports to the US increased slightly, whilst those to the EU decreased. Exports to Asia dipped slightly in 2014, as economic conditions weakened across key emerging markets, including China. As in previous years, services accounted for the majority (56%) of Scotland s exports to the rest of the UK in In contrast, international exports were dominated by manufacturing (52%), particularly Food and Drink exports and Coke, refined petroleum and chemical products, which also account for the majority of manufacturing exports to the rest of the UK. 2

10 10 State of the Economy June 2016 The First Quarter of 2016 Retail Sales The latest retail sales data showed that the volume of retail sales in Scotland increased 0.7% in the first quarter of 2016, the same pace as in the previous quarter. Volumes from large retail businesses were up 0.7%, whilst volumes from small and medium sized retailers were up 0.1%. Looking ahead to the second quarter of 2016, the Scottish Chambers of Commerce reported continued positive expectations for sales revenue and investment in the retail and wholesale sector at the start of the year. Business Surveys Scottish business surveys 3 provide an indication of current economic activity, in advance of official economic statistics 4. Overall, the business surveys have signalled that economic headwinds have continued to constrain economic activity at the start of Weak global demand and muted conditions in the oil and gas sector continued to be highlighted by surveyed organisations as key constraints on activity. Moreover, the surveys have noted that whilst these issues are particularly affecting manufacturers, firms in the Service sector have also been affected via supply chain linkages to the oil and gas sector. Consumer Sentiment The Scottish Consumer Sentiment Indicator showed a slight increase in household sentiment in the first quarter of 2016 compared to the final quarter of ,6 This slight rise in consumer sentiment was mainly driven by rises in expectations for economic performance over the next twelve months as well as increases in both household s current and future financial positions. Households did however give a slightly weakened response to the current economic performance compared to at the end of Latest Score (Q4 2015) Score - Previous Quarter Score - Same Quarter of Previous Year Score - Series Average Overall Indicator Score (a) Economy performance - last 12 months (b) Economy performance - next 12 months (c) Household financial position - last 12 months (d) Household financial position - next 12 months (e) Attitude to household spending - current Note: The overall indicator score is the mean of the net balances for each question from a-e. The net balance is the difference between the percentage of respondents reporting an improvement and those reporting a deterioration. 3 The Bank of Scotland Markit Purchasing Managers Index, CBI Industrial Trends Survey, Scottish Engineering Quarterly Review and Scottish Chambers of Commerce Quarterly Business Survey. 4 The next official GDP figures, covering Q1 2016, are due for release in July. 5 When the indicator is above (or below) zero it signals that consumer sentiments are, on balance, positive (or negative). When it is rising (falling), overall sentiments are improving (weakening). 6 Time series development in progress. Data is currently experimental and not seasonally adjusted.

11 11 State of the Economy June 2016 Update on the Oil and Gas Sector Oil prices fell from $115 per barrel (p.b.) in June 2014 to below $30 p.b. at the start of Since then, the price has gradually started to recover, increasing to around $50 p.b. in May The lower price over this period has continued to create challenges for the oil and gas industry and sectors associated with its supply chain whilst also supporting economy-wide benefits via lower inflation for businesses and consumers. At an economy wide level, the fall in oil price has contributed to the current low inflation environment with inflation at 0.3%. This has boosted real incomes in the Scottish economy - which rose by 1.4% over the year to April 2015, 7 its fastest rate in six years - leading to increased household spending power. At an industry and regional level, the fall in oil price has resulted in a steep drop in North Sea companies profitability. In response, companies reduced their operating expenditure by 16% in 2015, with a further 12% cut expected in Alongside this, capital investment fell to 11.6 billion in 2015, after peaking in 2014 at 14.8 billion as companies re-evaluated the projected returns on their investments 8. There are indications from a range of labour market information that this has had a particularly negative impact on employment in both the industry and the North East region of Scotland in which it is concentrated: Claimant count data over the year to April 2016 show increases in Aberdeen City, Aberdeenshire, Angus, the Shetland Islands and Orkney Islands. However, it is important to note that these Local Authorities remain amongst those with the lowest claimant count rates although Aberdeen City and Aberdeenshire have seen the largest percentage increase in claimant count rates over the period. Between January 2014 and May 2016, around 25,000 jobs (on shore and off shore) have been notified as at risk of redundancy, although not all these notifications necessarily translate into job losses. 9 In addition, it was estimated in April 2016 that hotel room rates in Aberdeen City have fallen by 27% on average compared to last year, while room occupancy fell for the 16th consecutive month. In March 2016, room occupancy in Aberdeen stood at 56.6%, a 16.3% fall compared to last year. 10 Looking ahead, the on-going restructuring of the oil and gas sector will be impacted by the outlook for prices and the profitability of production. This will continue to influence activity in the supply chain for the oil and gas sector and the wider economy in the North East region. 7 Source: Annual Survey of Hours and Earnings. 8 The net rate of return for oil and gas companies as reported by ONS in 2015Q4 is 0.6%, the lowest recorded since the series began in Source: Skills Development Scotland: HR1 Redundancy Risk Figures, (Jan 14 May 16). Figures reflect the scale of potential redundancies, not actual. The HR1 redundancy risk figures are indicative and tend to be overstated by around 50%. 10 Source: Source:

12 12 State of the Economy June 2016 Conclusion The Scottish economy continued to grow in 2015, but at a slower pace than the year before. The quarterly GDP figures also indicated that growth continued to slow during the year, before marginally picking up in the final quarter. Growth in 2015 was driven by the construction sector and service sector. Growth in the Construction sector continued to be supported by public infrastructure investment, although the pace of growth eased during the year. In the Service sector, whilst growth was relatively subdued throughout the year, it showed an encouraging uptick towards the end of the year. The production sector weighed on growth throughout 2015, contracting 2% over the year. The slower pace of growth in 2015 compared to 2014 is reflected in both the UK and global economies. External headwinds continue to affect the Production sector in particular, especially manufacturing, where sluggish growth in key export markets and falling investment in the oil and gas sector are creating challenges in both domestic and international markets. The business surveys at the start of 2016 signal that pressures on the manufacturing sector look set to continue, whilst the outlook for the service sector are finely balanced. A key uncertainty going forward is the extent to which the reduced activity in the oil and gas sector continues to spread through both the manufacturing and service sectors associated with the supply chain.

13 13 State of the Economy June 2016 Scottish Labour Market Headline Indicators Recent labour market data has indicated that the ongoing challenges in the Scottish economy are impacting on the labour market. The latest Labour Force Survey statistics for January to March 2016 show that the Scottish employment rate fell by 1.3 percentage points over the year to 73.1%. Scottish employment levels were down 45,000 over the year to reach 2,578,000. Despite this fall, the number of people in employment is now 141,000 above its post-recession low (Feb-Apr 2010). The Scottish unemployment rate rose slightly over the year, by 0.2 percentage points, to 6.2%. Although the current rate is significantly below its peak of 8.8% in May-July 2010, it remains above the UK s level of 5.1%. Alongside this, the economic activity rate fell 1.3 percentage points over the year to 78.0%, with the number of people participating in the Scottish labour market at 2,748,000. Rates Latest Data HEADLINE LABOUR MARKET STATISTICS Q'ly Change Annual Change Levels Latest Data Q'ly Change Annual Change Scotland Scotland Employment* 73.1% Total Employment^ 2,578,000-53,000-45,000 ILO Unemployment** 6.2% ILO Unemployment^ 169,000 8,000 2,000 Economic Inactivity* 22.0% Economic Inactivity^^ 752,000 46,000 44,000 UK UK Employment* 74.2% Total Employment^ 31,578,000 44, ,000 ILO Unemployment** 5.1% ILO Unemployment^ 1,692,000-2, ,000 Economic Inactivity* 21.7% Economic Inactivity^^ 8,902,000-20, ,000 *Denominator = Working age population (16-64) ^All persons ages 16+ **Denominator = Total economically active ^^All persons aged Source: Labour Force Survey (January-March 2016)

14 14 State of the Economy June 2016 Youth Labour Market Over the last year the youth labour market has been particularly impacted upon by the subdued conditions within the Scottish labour market. The most recent figures estimated that youth employment decreased by 33,000 over the year and unemployment increased by 4,000. Wages Real wages in the UK and Scotland have continued to improve since 2014, following an unprecedented six years of contraction. The most recent data for Scotland showed that real wages increased by 1.5% over the year to April More timely UK figures, from the Labour Force Survey show that real average weekly wages increased 1.4% over the year to March Furthermore, the Bank of England 12 forecast real wage growth to continue at around 2% over its forecast period to 2018, though this remains relatively subdued in comparison with pre-recession growth rates. Business Survey Employment Indicators Recent business survey evidence has also reflected this slight weakening in the Scottish labour market. The Bank of Scotland Purchasing Managers Index (PMI) composite indicator for employment contracted in April Below the headline indicator, the measure for employment in the Services sector signalled a fourth consecutive month of job reduction, whilst the measure for employment in the Manufacturing sector signalled a marginal decline over the month, consistent with the ongoing contraction in production. Conclusion The latest Scottish labour market data indicates a slight weakening with a fall in employment and corresponding increase in unemployment over the last year. Part of this may be due to volatility in the series. However, although employment remains considerably above its prerecession level, the current direction of the indicators reflects the generally subdued conditions within the economy at the start of Annual Survey of Hours and Earnings. 12 Bank of England Inflation Report, May 2016.

15 15 State of the Economy June 2016 Future Prospects Annual GDP Growth Forecasts (%) (Outturn) Fraser of Allander Institute (March 2016) Scotland Scottish ITEM Club (Dec 2015) Scotland HMT Average Independent (May 2016) - UK Overview Latest GDP forecasts for Scotland indicate that GDP growth in 2016 will be around 1.8%- 1.9%, in line with outturn growth for 2015 and Scotland s long term trend. The economic headwinds that faced the economy in 2015 weak demand in the global economy and the impacts of low oil prices weighing on the oil and gas sector and its supply chain are expected to continue in 2016 though balanced by the continuation of the low inflation and low interest rate environment supporting domestic consumer spending. As such, the outlook for the Scottish economy is finely balanced though expected to continue growing through 2016 and Business Surveys The latest Bank of Scotland PMI for Scotland indicated that private sector output remained unchanged in April 2016, after two months of contraction. Below the headline figure, whilst the Services indicator signalled no change, activity in the Manufacturing sector continued to contract at the start of the second quarter. Overall, business survey results have been mixed at the start of Although there is evidence of growth in the Service and Construction sectors, the surveys point to a continuation of the difficult conditions within the Manufacturing sector. Firms continue to cite low demand and the relative strength of sterling as key factors behind the weak export growth within the sector. Meanwhile, as highlighted by the Scottish Engineering Quarterly Review in June 2016, the impacts of the low oil price remain a key business concern amongst firms involved in the North Sea supply chain. 13 For Scotland we report on Fraser of Allander and Scottish ITEM Club Forecasts. We currently report both forecasts as the forecast and underlying analysis are publicly available. We are looking to expand the range of forecasts provided and will update this section in subsequent publications.

16 16 State of the Economy June 2016 Consumer Sentiment The Scottish Consumer Sentiment Survey 14 asks households if they expect economic conditions in 12 months time will be better/ worse/ the same. At the start of 2016, the balance of respondents reporting that they expect conditions to improve over the next year increased slightly. Looking at expectations for household finances, again, the results were positive, with the net balance seeing a slight improvement signalling that households feel their finances will be more secure in a year s time. Independent Forecasts At the beginning of March 2016 the Fraser of Allander Institute (FAI) published their latest forecasts for the Scottish economy, revising down their expectations for 2016 and 2017 to 1.9% and 2.2% respectively. The report highlighted how the risks confronting both the Scottish and UK economies were on balance skewed downwards. The key reasons highlighted by the FAI were the continued negative effects of the low oil price on the Scottish economy alongside continued export difficulties due to slower than expected world trade growth. The report also highlighted the domestic issues of high household debt and further fiscal tightening by the UK government as dampeners on future growth prospects. Overall, the average independent forecast for Scottish economic growth suggests expansion in Scotland s economy is expected to continue from this year into next. 14 Data is currently experimental and not seasonally adjusted.

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