The Fraser of Allander Institute has forecast a contraction of -0.7% in Scottish economy in 2023, before returning to annual growth in 2024 of 0.9%.
Uncertainty over the outlook for 2023 has increased in recent weeks, according to the institute’s quarterly Economic Commentary, which is sponsored by Deloitte and carried out by University of Strathclyde researchers.
The latest predictions are a slight revision up from the economist's previous set of forecasts in February.
However, they highlighted that concerns that have surfaced in some parts of the global financial system, alongside higher-than-expected inflation data published in the last week.
Professor Mairi Spowage, director of the institute, said: “High inflation will be with us throughout 2023, and although we still expect it to come down as we compare to the much higher price levels of 2022, significant price rises, particularly in food, are continuing to put pressure on household budgets.
“So, while the approach of the Bank of England to interest rate rises may be softening, they are still showing that they will be prepared to raise rates further to deal with persistently high inflation.
“Better than expected economic data at the start of the year is contrasted with the concerns we are seeing in some parts of the global banking system,“ she continued, adding: “All of this means that the outlook is exceedingly uncertain, and there are a number of risks to the forecasts – many of which are to the downside.”
Angela Mitchell, senior partner for Deloitte in Scotland, said: “The announcement of an Investment Zone in Scotland, made in the UK Spring Budget, could provide a real opportunity to bring together some of the great businesses, innovators and entrepreneurs in our country.
“Intended to complement Scotland’s two green freeport sites, this is one element of a widening grants and tax incentives landscape aimed at catalysing inclusive economic growth.
"At a time of political change in Scotland, with a newly-elected First Minister signifying one of the biggest developments in Scottish politics for a decade, it will be critical for businesses and government to work constructively to remain agile and effectively plan for the future."
Emma Congreve, deputy director of the institute, added: “The outlook for the UK economy published by the Office for Budget Responsibility which accompanied the Budget was significantly more positive than in November.
“Two thirds of the resultant fiscal wiggle room was used by the Chancellor for new announcements – although all of them were well trailed in advance.
“One thing that was disappointing was the lack of clarity on the annual impacts on the Scottish Budget, which did not become clear until some time later.”
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