Bank of Scotland

Scottish economy shows marginal improvement

04 April 2013

The latest Business Monitor shows a marginal improvement in the Scottish economy.

In the three months ending February 2013, 29% of firms surveyed increased turnover, 37% experienced static turnover, and just over a third (34%) experienced a decrease. This gave a net balance of -5%; a slight improvement from the -10% of the previous quarter and the -6% of the same quarter one year ago.

The overall net balance of turnover for firms in the production sector in the three months to end February this year was +2%. This is a very slight improvement on the +1% of the previous quarter but is identical to the +2% of the same quarter one year ago.

Service businesses are showing a larger improvement. The overall net balance for turnover for the three months ending February was -9%, significantly better than the -16% of the previous quarter and the -11% of the same quarter one year ago.

Volumes of repeat business were largely unchanged with a net balance of -4% this quarter compared to -5% in the previous quarter and up on the -9% of the same quarter one year ago. Trends in the volume of new business were similar with an overall net balance of -2% compared to -1% of the previous quarter but better than the -6% of the same quarter one year ago.

Export activity had plunged at the end of 2011 but a recovery set in at the beginning of 2012. The recovery halted during summer 2012 but deteriorated in autumn. The overall net balance for export activity in the latest three months was -5% - slightly worse than the -3% of the previous quarter and the -4% of the same quarter one year ago.

Firms' assessment of their immediate prospects in the next six months swung upwards and downwards in 2012. The deterioration evident in summer of last year was slightly reversed in autumn. These latest results are showing a small but significant improvement in expectations.

Expectations for turnover in the next six months are showing an overall net balance of +1%. This is a welcome improvement on the -5% of the previous quarter and a return to the +2% of the same quarter one year ago. Whilst just over half (51%) expect turnover to be static in the next six months, a quarter expect turnover to increase against 24% who expect a decrease.

Production firms are more optimistic than service firms with production firms showing an overall net balance for turnover for the next six months at +10% compared to -4% for services firms.

Expectations for future export activity have fallen from the last quarter but remain positive overall. The latest net balance for export activity for the next six months is +7% - a move downwards from the +16% of the previous quarter but still up on the +4% of the same quarter one year ago.

Expectations for the volume of repeat business were largely unchanged with an overall net balance of -5% for this quarter compared to -6% for the previous quarter and slightly down on the -3% of the same quarter one year ago. Expectations for the volume of new business are showing a welcome improvement with the latest net balance at +1%, significantly up on the -5% of both the previous quarter and the -5% of the same quarter one year ago.

These expectation levels do not indicate a significant fall in output accompanied by a return to deep recession but neither do they indicate the private sector of the Scottish economy showing significant levels of growth. They suggest an economy barely growing.

Donald MacRae, chief economist, Lloyds TSB Scotland said:
"The Scottish economy stagnated during autumn 2012. This latest Business Monitor suggests a slight relaxation in that stagnation. Despite the apparent poor performance in autumn, business expectations for 2013 have improved from a low position. A return to more vigorous growth in the Scottish economy awaits a further increase in confidence in both consumers and businesses. This in turn depends upon building on policy measures to contain the Eurozone sovereign debt crisis and implementing policies to restore the Eurozone and UK economies to growth."

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