Scottish economy resilience might surprise, given narrative

The Herald Scotland

05-05-2025

The annualised rate of decline of 0.3% in the first quarter, unveiled by the US Commerce Department, was not steep. However, it contrasted with an annualised pace of growth of 2.4% in the final three months of last year, before Mr Trump returned as President.
There has been little cheer on the UK or global economic front of late, to put it mildly, with Mr Trump's moves to implement tariffs on imports to the US having exacerbated what was already a tough outlook.
That said, an analogy from one analyst in the immediate wake of Wednesday's news that the world's largest economy had shrunk in the opening three months of 2025 offered a moment of amusement amid the misery.
Danni Hewson, head of financial analysis at stockbroker AJ Bell, said: 'There's that feeling in your gut and then there's seeing it in black and white. For investors, the cold hard data that showed the US economy contracted over the first three months of the year was a bit like realising you've been sat in a bath for too long. You knew things were getting chilly but you kind of hoped someone would turn on the hot tap before it got too cold.'
It seemed like an apposite parallel.
Addressing the nitty-gritty of the situation, Ms Hewson added: 'No one can quite understand why a President who was concerned with positive market movements in his first term in office could [wreak] such havoc in his first hundred days back in the White House.
'And it's not the tariff policy that's the biggest issue. Businesses around the world might not like tariffs but they can work with them. What they can't do is constantly re-draw investment plans as Donald Trump changes his mind, over and over again. Company after company has scrapped forward guidance or issued addendums warning that the shifting sands of geo-economics make existing guidance almost meaningless.'
Stellantis and Mercedes-Benz on Wednesday became the latest car-makers to scrap their profit guidance, citing market uncertainty in the context of Mr Trump's tariffs.
Reuters noted that, even before these latest developments, its analysis showed that about 40 companies worldwide had pulled or lowered their guidance in the first two weeks of the first-quarter earnings season.
James Knightley, chief international economist, US, at Dutch bank ING, said of the US gross domestic product data: 'As widely expected it was the net trade component where most of the weakness was seen with businesses seeking to bring in imports ahead of the tariffs.
'It subtracted 4.8 percentage points from headline growth as imports surged 41.3% while exports rose only 1.8%. This surge in imports did result in a sharp rise in inventories, which added 2.25pp (percentage points) to headline growth and likely helped facilitate the strong increase in equipment investment.'
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He highlighted the fact the first-quarter decline in US GDP was the first contraction of the world's largest economy since the second quarter of 2022.
Ms Hewson said of the US situation: 'Consumer spending has remained fairly robust, but sentiment has weakened and if things continue to get more expensive in shops over the next three months then the dreaded recession label could well follow. That is a psychological hurdle that's difficult to scale and expectation that the Fed will step in to cut interest rates at least twice this year has increased.'
Closer to home, there was some better economic news in two sets of GDP figures published on Wednesday by the Scottish Government.
One dataset revealed the Scottish economy grew marginally in the fourth quarter of last year, rather than stagnating as previously estimated.
The revised figures showed quarter-on-quarter growth of 0.1% in Scotland's onshore GDP in the final three months of last year.
This led to Scotland's growth in 2024 being revised up from 1.1% to 1.2%. While well adrift of long-term annual trend rates prevailing before the global financial crisis, this 1.2% expansion is slightly ahead of growth in the UK as a whole, which was revised up from 0.9% to 1.1% in late March.
The second set of Scottish Government data, also seasonally adjusted, showed onshore GDP north of the Border was in the three months to February up by 0.7% on the September to November period.
This was slightly ahead of UK growth of 0.6% recorded by the Office for National Statistics over this timeframe. And this seems like a resilient performance given the headwinds facing the UK, crucially including Brexit as well as the Trump tariffs, as well as one which might surprise many given the downbeat narrative about Scotland from some politically motivated doomsayers.
Scottish Deputy First Minister Kate Forbes said: 'Global economic uncertainty has been rising but I am encouraged to see growth of 0.7% in the three months to February.'
While highlighting the Scottish Government's efforts to 'face up to the very different economic landscape', draw in new investment and create jobs, she added: 'We need to see bold and decisive action from the UK Government at a scale which reflects the economic uncertainty being felt by business, workers and families – including the reversal of its damaging decision to increase employers' national insurance contributions.'
A reversal of the NI rise seems highly unlikely.
What seems certain, however, is that the UK and global economic backdrop will remain most challenging.