The State of the Economy report provides the latest assessment of Scotland's economic performance. Since the March publication, GDP data for Scotland confirmed growth overall in Scotland during 2016 of 0.4 per cent, which was below trend and expectation. In contrast, the labour market has been more resilient with employment continuing to rise and unemployment falling to near record low rates, albeit with a slight rise in inactivity levels.
In considering the Scottish growth and labour market data for 2016, there are a number of important considerations. Firstly, the impact of the Oil and Gas sector downturn is evident in the GDP data and we provide further analysis of the importance of the sector's supply chain to recent growth in Scotland. However, there are emerging signs that confidence is returning to the sector which, coupled with the structural improvements made by the industry since 2015, will put it on a stronger footing to take advantage of the opportunities which will emerge as cyclical factors improve.
The labour market data has remained strong during this period of lower growth. This, in part, reflects the ability (and demand) within the wider economy to absorb skilled labour and the underlying strengths of the economy in continuing to attract investment and generate employment opportunities.
The EY Attractiveness Survey for 2016 confirmed that Scotland continued to attract more FDI projects than any part of the UK, outside of London. Interestingly the composition of investment continues to evolve, with Scotland attracting more R&D/skills intensive projects reflecting the knowledge and skills base within Scotland. This report provides further analysis of those trends and new analysis looking at the influence of London on UK growth figures.
Looking ahead, the outlook for growth in 2017 remains positive but at below trend growth. Evidence suggests that growth in exports sales are materialising given the sustained depreciation of Sterling over the last year, supporting key export sectors such as Food and Drink. It is also rebalancing the economy as rising import prices feed through to higher inflation, impacting real income growth and household consumption. This is reflected in the retail sales data in the first quarter of 2017 and the continued weakness in consumer sentiment in Scotland. This report contains updated Scottish consumer sentiment data for Q1 2017.
Brexit continues to present a significant risk to business and consumer sentiment in Scotland with investment sensitive to changing market signals. It also presents the greatest source of uncertainty for the outlook particularly beyond 2018. The range of independent forecasts for 2017 suggest growth of between 0.9% and 1.3% for Scotland. At this level of growth, it is not unexpected to have a negative quarter as was evident in 2015 and 2016. However, as cyclical factors improve, coupled with the underlying strengths of the economy, growth should remain resilient.