North Sea downturn hits services but Scots manufacturers see sales buoyed by domestic demand -BCC

Scotland’s flagship services sector was been hit by falling UK and overseas sales during the the final quarter of last year.

But while oil and gas industry downturn hit services, manufacturers enjoyed strong domestic orders, according to figures from the British Chambers of Commerce.

The BCC study, published today, shows Scottish manufacturers reported an acceleration of growth in domestic sales and orders between the third and fourth quarters.

Scottish manufacturing firms were also found to be performing much better in the UK market than abroad, with the rise in domestic orders reported by manufacturers in Scotland for the fourth quarter the strongest posted by the sector in any of the 12 nations and regions of the UK surveyed by the BCC.

Describing a “mixed picture” of economic growth for Scotland in the fourth quarter of 2015, Liz Cameron, chief executive of Scottish Chambers of Commerce, said that disappointing exports highlighted a need for the UK and Scottish governments to “co-operate more effectively to help businesses to export, for example through private sector-led mentoring”.

“Although there are positive sales trends for the manufacturing sector, the service sector experienced a decline in terms the domestic and export market”, she said.

Subtracting the proportion of firms reporting a rise from that experiencing a fall, while adjusting the findings to give larger companies a greater weighting, the survey shows respective balances of seven per cent and 22 per cent of Scottish services companies recorded drops in domestic sales and export sales in the fourth quarter. In the third quarter, weighted balances of 10 per cent and two per cent of services firms north of the Border had reported rises in domestic and export sales.

A weighted balance of two per cent of Scottish manufacturers recorded a fall in export orders in the fourth quarter.

Garry Clark, head of the economic development intelligence unit at Scottish Chambers of Commerce, highlighted the impact of the oil and gas sector’s troubles on Scotland’s usually dominant services sector.

He said: “Certainly, the oil and gas side of things is still affecting the services (sector) in particular. Most of the businesses within the oil and gas sector we pick up under services. That has certainly again been driving down that side.”

Mr Clark added: “From quarter two of last year onwards, the oil and gas sector businesses were driving down results in the overall service sector. Again, that is the case in Q4, certainly for the BCC survey.”

He declared that the Scottish manufacturing sector’s performance had been “a bit of a mixed bag” over the course of last year.

Mr Clark also explained that Scottish manufacturing performance was “relatively decent” overall but he acknowledged that exports had been under pressure from the strength of the pound in the second half of 2015.

A weighted balance of 37 per cent of Scottish manufacturers reported a rise in domestic orders for the fourth quarter. In the previous quarter, a weighted balance of 29 per cent had recorded an increase in domestic orders.

Mr Clark warned of the danger that the effects of the oil and gas sector downturn would, as time went on, be felt increasingly in the broader Scottish economy.

He said: “The danger is the longer it goes on with oil and gas and the prices we are at now – touching $35 a barrel – the greater the danger what has been contained within the oil and gas sector spreads into the wider Scottish economy.”

Mr Clark highlighted significantly weaker growth in Scotland than in the UK as a whole in the second quarter of last year, the latest period for which official Scottish figures are available.

He added that all eyes would be on third-quarter Scottish gross domestic product data due this month, to see whether the disparity in growth rates in the three months to June was a “statistical blip” or a “real divergence”.

Ms Cameron noted British Chambers’ survey showed increases in the workforces of the Scottish manufacturing and services sectors in the fourth quarter.

She said: “Positive recruitment trends continued in the final quarter of 2015, with more than half of firms in both the manufacturing and service sector recruiting staff, the majority of which were permanent, full-time positions.”