However, compared to the turbulence of recent years, even a semblance of normality would be welcome. Over the last 15 years the global economy has been hit by a series of “once-in-a-generation” shocks, from the 2008 financial crisis to the Covid-19 pandemic and the recent energy price surge.
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By mid-2024, the Scottish economy was only around 2.5% larger than pre-pandemic. In other words, nearly five years of growth barely equalled what we might typically expect from one good year.
A return to stability wouldn’t just be a relief in itself. It would also create space for businesses to focus on boosting investment – which has been exceptionally weak in recent years – and for policymakers to implement the reforms necessary to address the chronic productivity challenges facing the economy.
Stability would also allow for meaningful discussions on how to tackle key structural transformations in our economy and public services, such as the transition to net zero, the integration of artificial intelligence, and the implications of an aging population.
But that was six months ago. As we enter 2025, the outlook has once again turned uncertain, with significant risks looming on the horizon.
Many sectors of the economy are still grappling with the fallout from Brexit, including higher costs, staff shortages, and diminished access to key markets. Ongoing conflicts in the Middle East and Ukraine continue to threaten energy prices and disrupt supply chains.
Next week, Donald Trump will be sworn in as the 47th President of the United States. If his administration follows through on its rhetoric of resurrecting 18th-century trade protectionism under the banner of “making America wealthy again,” the global economy could face serious repercussions.
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Key Scottish sectors, such as Scotch whisky, may find themselves in the crosshairs of retaliatory tariffs. More broadly, a potential trade war sparked by increased tariffs could fuel another wave of global inflation, forcing central banks to hike interest rates yet again.
These international challenges come on the heels of lacklustre UK growth data. The latest figures show the UK economy stagnating between July and September, with a slight contraction recorded in October. Indeed, in recent days, talk of stagflation has spooked bond markets. The UK Government’s borrowing costs are now at their highest level since 2008.
Despite these headwinds, our latest forecasts at the Scottish Fiscal Commission for the year ahead remain cautiously optimistic. We project growth of 1.6% in 2025/26. Not startling, but an improvement on last year.
More generally, the immediate next few years represent a critical window for Scotland to establish itself as a leader in the energy transition. The scale of planned investments – from port infrastructure to supply chain development – mirrors the transformative impact of the oil and gas boom nearly 60 years ago.
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That said, competition in the global renewable energy market is intense. Recent announcements of public and private sector investments in offshore wind and supply chain development are encouraging. However, success will depend not only on public funding and private capital but on swift and agile policymaking, efficient planning, streamlined regulation and policy certainty.
I think most in the industry would agree that there is room for improvement.
The Scottish Government’s recent announcement of a new renewable energy hub in Aberdeen, combined with the UK Government’s commitment to base GB Energy in the city, offers a promising framework for collaboration. By bringing key decision-makers and private investors together, these initiatives could unlock significant growth.
Ultimately, actions will matter more than words. Yet there seems to be genuine momentum and a strong sense of purpose among leaders to make this vision a reality. That, at least, is one reason to start 2025 with a degree of optimism.
Graeme Roy is professor of economics at the University of Glasgow’s Adam Smith Business School.