GDP under pressure

Brexit stockpiling is ‘risk’ to Scottish economy says economist

Port of Grangemouth

The Scottish economy is under Brexit pressure says report


Scotland’s economy could be hit by firms stockpiling to safeguard supplies when Britain leaves the European Union.

The Scottish government’s chief economist Gary Gillespie raises the issue as analysis shows the UK may stockpile up to £38 billion of goods.

This may give a short term boost to the economy but this would be “more than offset” as investment falls over the next four years, hitting GDP growth.

In his latest State of the Economy report, Mr Gillespie writes:

“Businesses may delay or defer decisions on new investment and consumers reduce or postpone spending.

“At the same time, the nature of investment may change as firms seek to bring forward investment to protect supply chains and identify alternative routes to service customers and key markets.”

The top economist added: “As noted previously, building stock inventories in advance of March 2019 may bring forward economic activity to this side of EU exit.

“Our new analysis suggests that while this could potentially boost Scottish GDP growth in 2018-19 by up to 0.4 percentage points, this would be more than offset by a slowing of output in subsequent quarters.

“The overall effect of stockpiling on the economy is negative in the medium term.”

Mr Gillespie’s report notes that Scotland’s economy has continued to strengthen in the first half of 2018 with annual GDP growth the strongest since 2014 and above the UK as a whole.

Independent growth forecasts suggest growth could strengthen further over the next couple of years, notwithstanding uncertainty around Brexit, according to official government figures.

Publishing the State of the Economy report ahead of MSPs returning to Holyrood, chief economist Gary Gillespie said Brexit uncertainty “may lead to greater volatility as companies consider investment plans over the coming months to protect supply chains and identify alternative routes to service customers.”

The State of the Economy report shows:

  • GDP growth is at its highest annual rate since 2014 and above the UK.
  • The labour market continues to perform strongly with unemployment falling over the past year and remaining close to its record level.
  • There are signals that business and consumer sentiment have softened in recent months amid ongoing Brexit uncertainty.
  • Independent forecasts for the economy are reflecting stronger performance, however Brexit remains the main risk.

Economy Secretary, Derek Mackay said: “With Scotland’s economy continuing to grow throughout the year, it’s good to see the improving outlook for the oil and gas sector coming to fruition alongside the continued strong performance in our labour market.

“Scotland’s economy is strong and we are one of the top destinations for inward investment, whilst Scottish productivity has grown faster than the UK’s over the past decade.

“We are using the powers we have to boost the economy and ensure our economic potential is realised at the same time as we try to mitigate the damage Brexit will cause.”

Scottish Conservatives will issue a statement today on the economy, likely to focus on the government’s failure to act on air departure tax as promised.

Failure to cut the tax was given as the reason for Norwegian Airlines withdrawing flights between Edinburgh and New York.

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