Bank of Scotland

Recovery of Scottish economy expected to continue throughout 2014

26 March 2014

The latest Business Monitor from Bank of Scotland is showing the recovery in the Scottish economy is continuing to strengthen at the start of 2014. Expectations for the next six months are at the highest level since mid 2007 – before the start of the recession.

In the three months ending February 2014, 41% of firms surveyed increased turnover, 36% experienced static turnover, and 23% experienced a decrease. This gave a net balance of +18%; a rise from the +15% of the previous quarter and a substantial improvement on the -5% of the same quarter one year ago.  This is the second best result in six and a half years and returns the net balance figure to pre-recession levels of late 2007.

The overall net balance of turnover for firms in the production sector in the three months to end February 2014 was +16%. This is up on the +12% of the previous quarter and well up on the +2% of the same quarter one year ago.

Service businesses are showing a similar pattern of improvement in performance. The overall net balance for turnover for the three months ending February was +20%, up on the +17% of the previous quarter and much improved on the -9% of the same quarter one year ago. Growth momentum has been maintained since last summer and is slightly greater in the service sector.

Volumes of repeat business rose strongly last quarter and remained at high levels in this latest quarter, with a net balance of +10% - identical to the +10% of the previous quarter and much higher than the -4% of the same quarter one year ago. Trends in the volume of new business have improved with an overall net balance of +22% compared to +13% of the previous quarter and the -2% of the same quarter one year ago.

Export activity had increased in spring 2013 but plunged downwards at the end of the year. A recovery is now evident in the latest Business Monitor. The overall net balance for export activity in the latest three months was +12% - a major turnaround from the -14% of the previous quarter and the -5% of the same quarter one year ago. This is welcome news for Scotland’s exporters.

Firms' assessment of their immediate prospects in the next six months swung upwards and downwards in 2012 but has been on a rising trend throughout 2013. This latest Business Monitor shows expectations for turnover in the next six months at the highest level since mid 2007 – six and three quarter years – before the start of the recession. This is the fifth successive Business Monitor showing a positive net balance for turnover expectations – the most optimistic sequence of results since 2007.

Expectations for turnover in the next six months are showing an overall net balance of +37%. This is much improved on the +16% of the previous quarter and the +1% of the same quarter one year ago. Whilst 39% expect turnover to be static in the next six months, almost half (49%) expect turnover to increase against 12% who expect a decrease. Service firms are slightly more optimistic than production firms, with service firms showing an overall net balance for turnover for the next six months at +39% compared to +33% for production firms.

Expectations for future export activity reached a survey record high over the sixteen and a quarter years of the Business Monitor. The latest net balance for export activity for the next sixmonths is +42% - a leap upwards from the +21% of the previous quarter and the +7% of the same quarter one year ago.

Expectations for the volume of repeat business were well up with an overall net balance of +27% for this quarter compared to +10% for the previous quarter and -5% of the same quarter one year ago.  Expectations for the volume of new business in the next six months were again optimistic with the latest net balance at +34% - double the +17% of the previous quarter and significantly up on the +1% of the same quarter one year ago.

These expectation levels suggest the private sector of the Scottish economy will show vigorous growth in spring and summer of 2014.

Donald MacRae, chief economist, Bank of Scotland said: “The surge in economic activity identified in summer 2013 has been maintained through autumn and winter with the latest quarter showing the second best result in six and a half years. Expectations for 2014 are at their highest level since mid 2007 suggesting the recovery will continue throughout 2014 and will become increasingly embedded. An increase in investment by firms would further enhance the recovery."

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