Scotland's Economic Landscape: A Tale of Two Cities and the Challenge of Change
December 5, 2024, 4:23 pm
Scotland's economy is at a crossroads. The first half of 2024 painted a promising picture, with growth keeping pace with the rest of the UK. But as the year unfolds, the forecast dims. The EY ITEM Club Scottish Forecast predicts a modest 0.7% growth in gross value added (GVA) for the year, trailing the UK average of 0.9%. The optimism of earlier months has given way to caution.
Edinburgh and Glasgow stand as beacons of hope. These cities are expected to lead the charge, with growth rates of 1.8% and 1.7% respectively from 2025 to 2029. They are the engines driving Scotland's economic future. Yet, the rural areas and islands face a different reality. Their prospects dim as they grapple with declining working-age populations and stagnant job markets.
The construction sector, once a pillar of strength, now shows signs of fatigue. Consumer spending, while projected to grow by 1.5% annually, cannot carry the weight alone. The service sectors, particularly healthcare and private services, are poised to support long-term growth. But will they be enough?
Aberdeen City and Aberdeenshire illustrate the struggles faced by many regions. The oil and gas industry, once a lifeline, has seen a steep decline. Aberdeen has lost nearly 18,000 jobs since 2010, a staggering 10% of its workforce. Meanwhile, Aberdeenshire has fared slightly better, with a 7% increase in employment. The contrast is stark, yet both areas face challenges.
The demographic landscape is shifting. By 2029, 21 of Scotland's 32 local authority areas are expected to see a decline in their working-age populations. Rural regions like Eilean Siar and Dumfries and Galloway are particularly vulnerable. Yet, urban areas are not immune. Inverclyde, part of the Glasgow City Region, is projected to experience a significant decline in its working-age population.
Economic inactivity remains a pressing issue. At 23.7%, Scotland's rate is higher than the UK average of 21.8%. This stubborn figure highlights the need for action. Reducing economic inactivity is crucial for sustainable growth. The Scottish Government's upcoming budget will be pivotal in shaping the economic landscape.
The challenges are compounded by rising costs. Businesses are caught in a bind. Increased employer National Insurance contributions threaten to stifle growth. Higher inflation looms, potentially keeping interest rates elevated. This environment is not conducive to attracting investment.
The forecast for productivity growth is modest, settling around 0.9%. Employment growth is expected to slow to just 0.5% per year between 2025 and 2029. These figures reflect the broader economic malaise. The Scottish Government must navigate these turbulent waters carefully.
Meanwhile, the financial services sector is grappling with its own set of challenges. The integration of AI and GenAI technologies is a priority, yet only 5% of firms consider themselves ahead of the curve. Most are still in the experimental phase. Despite aspirations for a more AI-enabled business, only 32% of firms believe they are on track with AI integration.
The workforce is unprepared. A staggering 77% of executives acknowledge that their teams have limited or no experience with GenAI technologies. Yet, only 27% have established training programs. The urgency for upskilling is palpable. The financial services sector must adapt or risk falling behind.
The potential impact of AI on jobs is significant. Executives predict that a quarter of current roles could be affected within a year. Entry-level positions are particularly vulnerable. Yet, only 14% of firms plan to restructure these roles. The disconnect between awareness and action is troubling.
The demand for AI talent is rising. Data science and innovation lead the charge, followed by front and back-office operations. Firms are seeking innovative thinkers who can adapt and collaborate. The attributes needed for success in an AI-driven landscape are clear, yet the path to acquiring them is murky.
Ethical concerns also loom large. Transparency, privacy, and accountability are top of mind for leaders. Only 14% of firms have implemented an AI ethics framework. The majority are still in the early stages of development. This lack of preparedness could have far-reaching consequences.
As Scotland navigates its economic future, the challenges are multifaceted. The cities of Edinburgh and Glasgow shine brightly, but the rural areas struggle in their shadows. The financial services sector must embrace change, yet many remain hesitant. The road ahead is fraught with uncertainty, but it is also ripe with opportunity.
The Scottish Government's decisions in the coming months will be critical. Policies that foster growth and innovation are essential. The time for action is now. Scotland stands at a pivotal moment, where the choices made today will shape the landscape of tomorrow. The future is unwritten, but the ink is in the hands of those willing to write it.
Edinburgh and Glasgow stand as beacons of hope. These cities are expected to lead the charge, with growth rates of 1.8% and 1.7% respectively from 2025 to 2029. They are the engines driving Scotland's economic future. Yet, the rural areas and islands face a different reality. Their prospects dim as they grapple with declining working-age populations and stagnant job markets.
The construction sector, once a pillar of strength, now shows signs of fatigue. Consumer spending, while projected to grow by 1.5% annually, cannot carry the weight alone. The service sectors, particularly healthcare and private services, are poised to support long-term growth. But will they be enough?
Aberdeen City and Aberdeenshire illustrate the struggles faced by many regions. The oil and gas industry, once a lifeline, has seen a steep decline. Aberdeen has lost nearly 18,000 jobs since 2010, a staggering 10% of its workforce. Meanwhile, Aberdeenshire has fared slightly better, with a 7% increase in employment. The contrast is stark, yet both areas face challenges.
The demographic landscape is shifting. By 2029, 21 of Scotland's 32 local authority areas are expected to see a decline in their working-age populations. Rural regions like Eilean Siar and Dumfries and Galloway are particularly vulnerable. Yet, urban areas are not immune. Inverclyde, part of the Glasgow City Region, is projected to experience a significant decline in its working-age population.
Economic inactivity remains a pressing issue. At 23.7%, Scotland's rate is higher than the UK average of 21.8%. This stubborn figure highlights the need for action. Reducing economic inactivity is crucial for sustainable growth. The Scottish Government's upcoming budget will be pivotal in shaping the economic landscape.
The challenges are compounded by rising costs. Businesses are caught in a bind. Increased employer National Insurance contributions threaten to stifle growth. Higher inflation looms, potentially keeping interest rates elevated. This environment is not conducive to attracting investment.
The forecast for productivity growth is modest, settling around 0.9%. Employment growth is expected to slow to just 0.5% per year between 2025 and 2029. These figures reflect the broader economic malaise. The Scottish Government must navigate these turbulent waters carefully.
Meanwhile, the financial services sector is grappling with its own set of challenges. The integration of AI and GenAI technologies is a priority, yet only 5% of firms consider themselves ahead of the curve. Most are still in the experimental phase. Despite aspirations for a more AI-enabled business, only 32% of firms believe they are on track with AI integration.
The workforce is unprepared. A staggering 77% of executives acknowledge that their teams have limited or no experience with GenAI technologies. Yet, only 27% have established training programs. The urgency for upskilling is palpable. The financial services sector must adapt or risk falling behind.
The potential impact of AI on jobs is significant. Executives predict that a quarter of current roles could be affected within a year. Entry-level positions are particularly vulnerable. Yet, only 14% of firms plan to restructure these roles. The disconnect between awareness and action is troubling.
The demand for AI talent is rising. Data science and innovation lead the charge, followed by front and back-office operations. Firms are seeking innovative thinkers who can adapt and collaborate. The attributes needed for success in an AI-driven landscape are clear, yet the path to acquiring them is murky.
Ethical concerns also loom large. Transparency, privacy, and accountability are top of mind for leaders. Only 14% of firms have implemented an AI ethics framework. The majority are still in the early stages of development. This lack of preparedness could have far-reaching consequences.
As Scotland navigates its economic future, the challenges are multifaceted. The cities of Edinburgh and Glasgow shine brightly, but the rural areas struggle in their shadows. The financial services sector must embrace change, yet many remain hesitant. The road ahead is fraught with uncertainty, but it is also ripe with opportunity.
The Scottish Government's decisions in the coming months will be critical. Policies that foster growth and innovation are essential. The time for action is now. Scotland stands at a pivotal moment, where the choices made today will shape the landscape of tomorrow. The future is unwritten, but the ink is in the hands of those willing to write it.