The Scottish economy is in a fragile state, according to new national forecasting from EY, with the US’s recent announcement of 10% tariffs on all imports exacerbating an already gloomy outlook, driven by low business and consumer confidence.

The latest EY ITEM Club Scotland forecast found that US tariffs are likely to have an asymmetric impact on local areas, with the vacuum between Scotland’s rural and city economies predicted to grow as the impact of tariffs hits, deepening the existing gap in prosperity.

Employment and GVA figures for 2023 indicate that regions such as West Dunbartonshire, West Lothian, Argyll and Bute, Clackmannanshire, Moray and Angus were the most export-dependent, mostly due to large whisky sectors.

EY is predicting that the smaller and less diversified of these economies, namely Clackmannanshire, Moray and Angus, will struggle most this year, though said a trade deal with India may alleviate some tariff burdens on whisky exports.

At a national level, Scotland’s 2025 GVA growth forecast has been downgraded to 0.6%, falling from 0.9%. Some of this is expected to roll into next year, and as such, 2026 is forecast to be 0.6%, a much larger downgrade from 1.5% last quarter.

Consumer spending is anticipated to grow 0.7% this year, down from the more than 1% previously forecast. However, EY said this should start to pick up in 2026, with the impact expected to filter through to wider economic growth in 2027, which will see GVA expanding by 1.2% that year.

Meanwhile, by comparison, UK GDP is expected to grow by 0.8% this year, down from 1%, and 0.9% in 2026, before settling to a growth of 1.5% in 2027.

EY said that Scotland was beginning to lag the wider UK picture due to the country’s industrial profile, with its larger manufacturing sector more susceptible to US tariffs and weakening global demand in the short term, and its large public sector coming under pressure as fiscal conditions continue to tighten.

Scottish manufacturing has also proven volatile, with modest growth of 1.2% recently, but faces challenges due to weak demand, particularly in transport and food and drink subsectors.

Meanwhile, in production sectors, which contributed to growth in Q1 2025, output levels remain below pre-pandemic figures, particularly in oil, gas, and electricity supply, which have seen significant declines.

Productivity gains, rather than employment, is anticipated to contribute the most to longer-term economic growth, especially when factoring in that Scotland’s working-age population, like many other parts of the UK, is set to decline from 2027 onwards, limiting the scope for future jobs growth.

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“Looking ahead, a number of geopolitical, global economic moves are expected to foster caution among businesses and consumers, which could lead to delayed spending decisions,” said Ally Scott, managing partner for EY Scotland.

“Consequently, Scottish GVA growth forecasts have been downgraded for both 2025 and 2026, although improvements are anticipated from 2027 as consumer spending rises.”

EY’s glum forecast contrasts with that offered by the latest Business Barometer from Bank of Scotland.

That report indicates business confidence in Scotland rose 12 points during May to 52%, and while Scottish firms reported lower confidence in their own business prospects month-on-month, their optimism in the economy rose 29 points to 48%.

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