Here is this week's Scotonomics, we hope you will enjoy. This week the newsletter comes from William Thomson​ (follow me on X/Twitter!)

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AFTER the embarrassing and ultimately destructive abandonment of 2030 climate targets, the Scottish Government has vowed to achieve something even more challenging: growing Scotland’s per capita GDP.

Since returning as Scotland’s Economy Secretary, Kate Forbes has doubled down on her March 2022 foreword to Scotland’s National Strategy for Economic Transformation (SNET), which said that the Scottish Government “aims to deliver economic growth that significantly outperforms the last decade”. In an interview with The Times, Forbes said: “The plan is simple. Get the economy firing on all cylinders, and it will power a better future.”

It has been two years since Forbes aimed for “significant” growth. So, how are we doing? Economic growth in 2023, compared to 2022, was 0.2%. Scotland entered a recession at the start of 2024. But the economic malaise has a longer history. According to Scottish Government figures, Scotland's average GDP growth rate from 2000 to 2019 was 1.4%. From 2008 to 2019, it was 0.7%.

Like almost every other country in the global north, Scotland's GDP growth is stagnant, so why would our new Economy Secretary and the First Minister promise the exact opposite of what the data suggests? Especially after such an embarrassing climbdown over the 2030 climate targets. The plan isn’t just to reverse the trend and “significantly outperform” the last decade. You will not find one economist who thinks this is possible.

Over the next three newsletters, I will address three specific areas around GDP to explain how unsound and damaging this commitment to growth is. This week, I explain why increasing per capita GDP growth in Scotland over the next decade is highly unlikely.

THE ODDS

“Significant” economic growth would have to be above 2%. So, is this even remotely possible?

As a small, open economy, Scotland is disproportionately affected by global economic downturns. If our major trading partners do not grow, neither does our economy. Recently, the European Union reduced its growth forecasts for the eurozone economy to 0.6%. With a huge dose of austerity on the way, the eurozone may have a recession this year. The same conditions exist in rUK. The UK economy, including Scotland, had two periods of negative growth (a recession) in late 2023 and early 2024. It is unlikely that the rUK (our biggest trading partner) will grow at all in 2024.

Many of our largest export destinations are disentangling from global supply chains and encouraging more internally focused growth. America’s latest 100% tariff on Chinese EVs points to a very different world – a world where export-led growth for small nations becomes even less likely.

We must also grow our economy during an unprecedented and unfolding ecological crisis to achieve the GDP target. A 2024 paper, The Macroeconomic Impact of Global and Country-Specific Climate Risk, discusses climate change's impact on GDP. Highlighting the interconnectedness of our economy, the report states that it doesn’t matter if an individual country isn’t greatly affected by temperature changes and volatility, “the impact of climate risk on macroeconomic activity is far-reaching and potentially long-lasting”.

A paper released in May by the National Bureau of Economic Research found that “the macroeconomic damages from climate change are six times larger than previously thought”, and in what could be used as a description of the Scottish Government’s current approach, “a business-as-usual warming scenario leads to a present value welfare loss of 31%”.

That’s minus 31%! How does growing by 2% stack up against the science?

These papers suggest that growth is unlikely due to climate change and that GDP will, in fact, decline over the next decade.

In summary, Scotland must swim against the strongest macroeconomic forces possible to maintain its current growth level. We haven’t even mentioned the impact of global conflicts. The chances of “significant” economic growth in the next decade are very unlikely. And now, the really depressing part.

WHERE WE ARE

The economic conditions in the UK are uniquely worrying.

Being removed from the European single market in such a destructive manner has greatly impacted Scotland’s GDP. Goldman Sachs recently suggested that “the true hit to the British economy could be anywhere from 4% to 8% of real gross domestic product”.

Its figures are similar to other studies and the impact could potentially be even worse for Scotland’s GDP.

It is not just Brexit. Other Tory policies that affect Scotland will likely limit Scotland’s potential for GDP growth. One area of significant concern is the ideological self-harming battle to curb immigration. And nowhere is there a better example of what harm those policies have than education. Economist Daniela Gabor posted on Twitter/X in May: “The Conservative government is hell-bent on destroying one of the few remaining competitive British exports, higher education.”

Scotland’s universities contribute around 10% of Scotland’s GDP and will no doubt see that share drop over the next decade. As can be seen below, the decline in GDP growth is not industry or sector-specific:

Another damaging Tory approach is to avoid any form of industrial strategy. The UK has no green (or brown) industrial strategy. Without one, the UK, including Scotland, will struggle to maintain its already low level of exports, meaning our trade balance will worsen. More imports – another way to reduce GDP.

The macroeconomic conditions strongly suggest that GDP growth for a nation like Scotland will stagnate, if not decline. Our place within the UK makes that even more likely. Yet, our Government sets itself up to defy the odds, the economic reality and, perhaps most worryingly, the science.

Will the Scottish Government ever learn? It is setting itself up for a tremendous failure. The most frustrating part is that progressive organisations across Scotland have highlighted an alternative.

Next week, I build the case against having GDP targets by detailing how the Scottish Government's lack of economic levers makes it impossible for it to oversee economic growth.