Bank of Scotland

Scottish economy continuing to recover from slowdown

28 September 2015

The latest Business Monitor from Bank of Scotland shows the Scottish economy continuing to recover from the slowdown experienced at the start of the year. New business levels have picked up strongly this summer. Expectations for the next six months continue to signal moderate growth for the remainder of 2015.

In the three months ending August 2015, 36% of firms surveyed increased turnover, 36% experienced static turnover, and 28% experienced a decrease. This gave a net balance of +8%, marginally up from the +7% of the previous quarter but well down from the +30% of the same quarter one year ago. This latest result continues the improving trend identified in spring this year.

The overall net balance of turnover for firms in the production sector in the three months to end August 2015 was +3%. This is an improvement on the -2% of the previous quarter but well down on the +35% of the same quarter one year ago.

Service firms showed an overall net balance for turnover for the three months ending August of +11%, down on the +14% of the previous quarter but well down on the +27% of the same quarter one year ago. The sectors are showing a sharp divergence.

Volumes of repeat business are showing a slight improvement in the latest three months. The overall net balance of +2% is marginally better than the 0% of the previous quarter but worse than the +15% of the same quarter one year ago. Trends in the volume of new business are much better with an overall net balance of +17% compared to +3% of the previous quarter and close to the +23% of the same quarter one year ago. New business volumes in summer this year have recovered to the levels seen in 2014 after a poor six month period at the end of last year and the spring of this year.

Export activity is showing a fall but at a much slower rate than in the previous quarter. The overall net balance for export activity at -9% is an improvement on the -24% of the previous quarter but is still worse than the +13% of the same quarter one year ago. Exporting to Eurozone economies should become easier as growth picks up in many of the currency bloc’s member countries but is being hampered by the rise of sterling against the Euro.

Firms’ assessments of their immediate prospects in the next six months were on a rising trend throughout 2013 and reached highs in the first two quarters of 2014. The remainder of 2014 showed lower but still strongly positive levels of expectations. Despite a fall compared to last quarter, expectations remain positive but are lower than the high levels evident pre-recession. This is the eleventh successive Business Monitor showing a positive net balance for turnover expectations.

Expectations for turnover in the next six months ending February 2016 are showing an overall net balance of +15%. Although positive and relatively robust, this is down on the +22% of the previous quarter and down on the +21% of the same quarter one year ago. Whilst 47% expect turnover to be static in the next six months, 34% expect turnover to increase against 19% who expect a decrease. Service firms are much more optimistic than production firms, with service firms showing an overall net balance for turnover for the next six months at +22% compared to +8% for production firms.

The latest net balance for expected export activity for the next six months has fallen for the second successive Business Monitor. The net balance reached -13% - down on the -6% of last quarter and significantly worse than the +32% of the same quarter one year ago. An increase in uncertainty, a slowing world economy and a rising pound sterling have taken their toll of firms’ assessment of export prospects.

Expectations for the volume of repeat business were marginally down on the high levels of the last quarter with an overall net balance of +4% for this quarter compared to +8% for the previous quarter and significantly down on +15% for the same quarter one year ago. Expectations for the volume of new business in the next six months have improved with the latest net balance at +18% - up on the +16% of the previous quarter but down on the +22% of the same quarter one year ago.

These expectation levels suggest the private sector of the Scottish economy will show growth close to but below trend level in the third quarter of 2015, recovering from the slowdown at the start of the year.

Donald MacRae, chief economist, Bank of Scotland said: “The Scottish economy slowed at the start of 2015 but is expected to return to moderate growth in summer and autumn. Expectations remain positive and suggest that current growth rates will be maintained in the third quarter of the year."

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