Posted: 25 Apr. 2019 6 min. read

Innovative and collaborative approaches key to securing Scottish economic growth

The Fraser of Allander Institute’s latest Economic Commentary, which is supported by Deloitte, highlights that Scotland’s economy continues to demonstrate some resilience most notably through near all-time high levels of employment, currently at 75.6%, and continuing steady, if low, growth – Scotland’s economy grew by 1.4% in 2018.

While these positive indicators are welcome, Scotland continues to be challenged, like much of the rest of the UK, by fragile levels of productivity growth with the consequent impact on real earnings growth. This quarter’s Commentary points to productivity in Scotland having barely moved since 2010.  In addition, despite the record levels of employment, it also highlights that in-work poverty is on the rise with over 50% of those in poverty now living in a household where there is at least one working adult.

Further, the sluggish levels of productivity and earnings growth mean devolved tax revenues are forecast to grow more slowly, with a subsequent impact on Scottish Government budgets.

While most understand that improving productivity must be a priority in order to increase real earnings and raise living standards, as the Fraser of Allander points out, in these uncertain times it is proving difficult for policy makers to make room for the discussions and actions which can address the longer-term structural opportunities and challenges facing Scotland.

Similarly, while a cautious approach is understandable as businesses try to adapt to working within an environment where uncertainty is the new normal, without a bolder, more collegiate approach there is a risk that Scotland’s economic growth remains lacklustre.

Increased investment from businesses should help to improve productivity.  However, the latest Commentary finds that business investment has now fallen in the UK for four consecutive quarters.  This echoes the findings from Deloitte’s latest CFO survey which shows that businesses are continuing to build their cash balances and delay investment, with concerns about the long-term impact of Brexit reaching an all-time high.

However, it’s vital that businesses continue to consider the wide range of outcomes possible. A more ambitious and medium-term outlook through innovation, collaboration and investment in talent should help to create a more robust business climate that can help deal with the future economic and fiscal challenges.

There is a pressing need to encourage investment and to improve productivity. There is no doubt this is a significant challenge. However, with the economic strengths we have, a determination to capitalise on the opportunities that will arise while supporting people to enhance their skills, encouraging innovative thinking and improving collaboration in key sectors, we should be confident we can rise to the challenge.

Deloitte is proud to support the Fraser of Allander Institute’s Economic Commentary.  Find out more here.

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