Council of Economic Advisers: annual report 2015-2016

2. Overview of Economic Developments in 2015-16 ^[2]

In each of our meetings we discuss emerging economic trends with the First Minister, supported by an overview of the current state of the Scottish economy provided by the Scottish Government's Chief Economist. This section gives an overview of economic developments in 2015 and 2016, which informed the Council's discussions with the First Minister, and formed the backdrop to the wider work of the Council in the last year.

Recent Economic Developments

The Scottish economy grew by 2.1% in 2015, in line with the historic trend, with growth driven by the Construction and Service sectors. However, the pace of growth slowed across the year, with Production output, particularly in manufacturing, contracting over the period.

In the labour market, the Scottish employment levels reached record highs in 2015. However, moving into 2016 the Scottish unemployment rate picked up slightly, showing a divergence in trends from the UK as a whole, where the unemployment rate had continued to decline.

Throughout 2015 and into 2016, both Scotland and the UK have faced a challenging external backdrop, with muted global conditions impacting exporters and large manufacturing plants. These pressures have been exacerbated in Scotland by the fall in the oil price, which has led to a substantial reduction in activity in the offshore sector and wider on-shore supply chain.

However, the economic climate and outlook for Scotland, the UK and Europe as a whole has fundamentally changed following the UK's vote to leave the EU on 23 ^rd June 2016. The initial response and volatility of the financial markets reflects the heightened uncertainty of investors and fears of a broader economic slowdown. As such, the challenging economic environment will likely persist going forward as new risks and opportunities for the Scottish economy materialise.