Economic slowdown linked to global uncertainty amid Trump tariffs
The Fraser of Allander Institute also highlighted a recent rise in inflation this year as having 'played a role' as the economy 'faltered'.
Economics experts at the Strathclyde University-based think tank have now downgraded their forecasts for growth.
Speaking as its latest quarterly economic commentary was published, institute director Professor Mairi Spowage said: 'After a strong start to the year, the Scottish economy has faltered in March and April and is essentially the same size in real terms as it was six months ago.
'Unfortunately, the wider business environment and global events are still taking a toll on businesses and consumers, which is having a dampening effect on spending and business investment.'
The think tank now expects economic growth of 0.8% in 2025 and 1.0% in 2026 – which is a slight downgrade from its April forecasts of 0.9% and 1.1%.
It noted Scottish real GDP grew 0.4% in the first quarter of 2025, compared to 0.7% in the UK as a whole.
The think tank said: 'A pattern of lower growth in Scotland has persisted, leading to a weaker recovery from the pandemic than the UK generally.'
Looking at the latest data, it found Scotland's economic growth had 'remained slow', with rises in the first months of 2025 having been 'partially offset' by decreases in March and April.
The report said: 'The slowdown in growth this year is largely due to higher global uncertainty, particularly from the announcement of tariffs in the US and elsewhere.
'With the CPI (Consumer Prices Index) rate at 3.4% in May 2025 after staying below 3% throughout 2024, an uptick in inflation has also played a role.'
The think tank said its latest forecasts 'reflect greater uncertainty and difficult economic circumstances'.
It also noted that businesses had reported a slowdown of activity in the first quarter of 2025 compared to the same period last year.
The report said this 'decline in activity may reflect the impact of increases to employer national insurance contributions as well as uncertain conditions, particularly from trade and tariff decisions taken by the US government'.
It said the 'difficult conditions for business have been echoed in the labour market', with the think tank noting pay growth has been 'slow' and the number of employees has fallen 0.9% from last year.
It also said there was 'some indication that the proportion of people living beyond their means in Scotland may have increased compared to this time last year' – but added other indicators of financial stability 'seem to be holding steady'.
Deputy First Minister Kate Forbes said: 'It is clearer than ever that Scotland's economy is being impacted by challenging global trading conditions and uncertainty – conditions mirrored across the rest of the UK.
'We are taking ambitious steps to grow the economy by pursuing new investment, building export potential and driving and capitalising on the Scottish innovation at the forefront of many key global industries.
'But we are doing all of this without the full economic powers needed to fully address the issues facing Scottish businesses. We need decisive action from the UK Government to counter the damaging economic impacts of Brexit and business uncertainty.
'This includes reversing its decision to increase employers' national insurance contributions which, as the Scottish Chambers of Commerce has highlighted, is severely damaging business confidence, investment, growth and jobs.'
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