Low oil prices are hurting Scotland’s economy more than was predicted, a new report says.
EY Scottish Item Club says the fallout from the North Sea oil and gas downturn is spreading.
But the spin-off benefits of weaker oil prices are “more modest” than in past troughs for the cyclical industry, it adds.
The economic forecaster now expects the rate of economic growth north of the border this year to be the poorest since 2012.
It has downgraded its estimate of gross domestic product (GDP) – economic output – growth in 2016 to 1.2%, down from its 1.8% forecast six months ago.
Scotland’s economic “travails” are currently looking “even bigger than we might have expected”, Dougie Adams, senior economic advisor to the EY Scottish ITEM Club, said yesterday.
He said he did not know why the impact of the oil and gas downturn seemed to be hitting so much harder this time.
But the “bang” of consumers being better off is “nothing like the effect we have seen before”, he added.
EY Scottish Item Club cites a challenging global trading climate, Scotland’s “continuing vulnerability to the fallout from the oil price slump” and a partly-related underperformance in key parts of the service sector among the factors behind its downgrade for growth in 2016.
Scotland now trails the UK as a whole for economic growth per head of population.
Mr Adams said: “Scotland now faces a third consecutive year of slowing GDP growth in 2016.
“But as the negative impact of the oil-price bust on growth fades in 2017 and 2018 the pace of expansion should pick-up, with an output increase of 2% expected from next year.
“In December, EY Scottish Item Club reported an unsustainable, overdependence on the construction sector in Scotland for growth. “This expansion is now easing, from a staggering 20% in 2014 to 11% in 2015, eroding the sector’s contribution of overall GDP growth.”
EY Scottish Item Club expects the world economy to grow by 2.2% this year, also a downward revision from its previous forecast, making 2016 the weakest year globally since 2009.
