Economic Commentary – February 2024

The Economic Commentary provides a regular update on global, UK and Scottish economic trends, drawing on recent economic data as well as feedback from businesses.

The methodology consisted of desk research.

The IMF is forecasting global economic growth to remain at 3.1% in 2024 and rise marginally to 3.2% in 2025. Global business activity picked up at the start of 2024, due to improved performance in both services and manufacturing sectors. Generally, emerging markets continue to outperform their developed counterparts. The UK entered recession at the end of 2023 as GDP contracted by 0.3% in Q4, following -0.1% in Q3. Output fell across services (-0.2), construction (-1.3%) and manufacturing (-0.9%). UK service sector activity increased in January at the fastest rate since last May; however, manufacturing output decreased at its fastest level for 3 months. Business growth increased across 10 out of 12 UK nations/regions, including Scotland. Scotland’s onshore GDP contracted by 0.1% in November (following -0.6% in October). Service sector output increased (+0.4%), but this was offset by declines in manufacturing (-1.7%) and construction (-0.2%). 31% of Scottish businesses reported a decrease in monthly turnover in December (44% for manufacturers). This is the fourth consecutive month where more businesses have reported a fall in sales than a rise. Scotland’s labour market shows signs of softening as the unemployment rate increased 1.1ppts to 4.5% over the year in October - December, while the employment rate fell to 74.4%. A quarter of Scottish businesses reported worker shortages in January, though this proportion has dropped in recent months. Median monthly wages rose by 6.1% over the year to January 2024 (above 4.0% inflation). SE customers are becoming more optimistic about the year ahead and the prospect of lower inflation and falling interest rates. Confidence to invest is rising, and many are looking at innovating to boost productivity. Ernst & Young is forecasting the Scottish economy will grow 0.7% in 2024, rising to 1.4% in 2025. The Fraser of Allander Institute is slightly less optimistic, forecasting growth of 0.6% and 1.1%.

The paper makes no recommendations.