Scottish economy headwinds to fore but also feather in cap

The Herald Scotland

14 hours ago

However, while the stream of news has highlighted the headwinds for the Scottish economy and the challenges facing businesses, with much of the woe emanating from further afield, it has not been universally dismal.
Scotland's onshore GDP contracted by 0.2% in May, according to data published on Wednesday by the chief statistician.
The Scottish Government chief economist directorate said: 'In May, the largest negative contribution to headline GDP was in manufacturing, which contributed -0.4 percentage points to headline GDP. This was partly due to the cessation of oil refining activity at the Grangemouth oil refinery.'
Crude oil processing at Grangemouth ended on April 29, owner Petroineos confirmed at the time.
There was some good news in the latest GDP data, however. Scottish onshore GDP is now calculated to have risen by 0.1% in April, having previously been estimated to have declined by 0.2% in that month.
UK GDP fell by 0.1% in May, after declining 0.3% in April.
That said, Scottish GDP in the three months to May was down 0.4% on the December to February period.
And the outlook for the overall UK economy for the rest of this year is not something anyone will be turning cartwheels over.
With the Labour Government having ruled out, seemingly for political reasons, the huge win of rejoining the European single market, it remains difficult to see anything that is going to lift the gloom over the UK outlook.
Staying on the subject of the Labour Government, its hike in employers' national insurance contributions remains very much in focus.
There were eye-catching findings on this front in the latest Scottish business monitor from the University of Strathclyde's Fraser of Allander Institute.
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This covered the second quarter and surveyed more than 300 companies. And it found more than 60% of Scottish businesses have adjusted their operations because of the rise in employers' national insurance.
Fraser of Allander observed 'many' were 'adapting to this through a combination of strategies: cutting back on hiring or cancelling increases in their workforce, adding the extra costs on to prices, and reducing employee benefits and compensation packages'.
And its monitor found nearly 40% of Scottish businesses expect to make more adjustments down the road in response to the rise in employers' national insurance.
However, Fraser of Allander also saw some 'green shoots', in what is clearly a difficult environment for businesses not just in Scotland but throughout the UK.
The research institute, while declaring the Scottish business community has 'had to deal with a plethora of challenges since the pandemic', said: 'Despite business sentiment becoming more pessimistic for the remainder of 2025, the outlook for growth in the Scottish economy over the next year is slowly becoming more optimistic.
'A total of 73.5% of businesses expect weak or very weak growth compared to last year. However, this is down from 79.3% in the previous quarter, suggesting possible green shoots on the horizon.'
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Fraser of Allander added: 'Three per cent of businesses expect strong or very strong growth compared to the previous 12 months. This is an increase of 2.2 points from last quarter.'
And it observed 23.5% of businesses now expect moderate growth, up 3.6 points from the first-quarter survey.
Lamentably, a steeper decline in export activity in the second quarter is signalled by the business monitor.
Josh Hampson, knowledge exchange assistant at Fraser of Allander, said: 'The ongoing uncertainty around trade continues to show up in the sharp decline in the export activity from what was already seen as a weak starting point in the first quarter of 2025.'
On a more positive note, the rate of decline of volume and value of business activity or sales eased in the second quarter, the monitor shows. Employment also fell at a slower pace, as did the volume of new business activity.
Continuing falls in business activity and employment are obviously not great news but at least the pace of decline eased significantly in the second quarter.
Elsewhere last week, my column in The Herald on Wednesday highlighted some very positive news for Scotland.
The column focused on research published late last month by Young Company Finance concluding 'Scotland's early-stage investment landscape continues to broaden its international appeal'.
YCF's latest Scotland newcomer investors report showed 73 investors new to the Scottish market participating in funding rounds during 2024.
Highlighting growing international interest, YCF declared: 'The 73 newcomer investors in 2024 represent the highest number recorded since 2021, demonstrating Scotland's expanding reputation as an attractive investment destination.'
And YCF, which confirmed more than half of the 73 newcomer investors in 2024 were from overseas, observed: 'The report, which tracks investors making their first investment in a Scottish company, shows an overall 20% increase from 61 newcomers in 2022.'
My column, which highlighted success on the foreign direct investment front as well as the positive news from the YCF report, concluded: 'The numbers are tending to tell a good story when it comes to Scotland.
'They are doing so particularly in relation to Scotland's reputation on the global stage, whether that be in relation to FDI or the attractiveness of the nation's companies to overseas investors, and this hopefully bodes well for the future.'
It is important not to lose sight of such important positives in these difficult times.