Scottish economy suffers “sharp jolt” in 2015’s opening months -BoS

The latest Business Monitor from Bank of Scotland describes a “sharp jolt” to growth in the Scottish economy as it showed in the three months to the end of February.

33 per cent of firms surveyed increased turnover, 34 per cent experienced static turnover, and 33 per cent experienced a decrease, giving a net balance of 0 per cent.

This was well down from the +16 per cent of the previous quarter and the +18 per cent of the same quarter one year ago and the worst result in 21 months.

This latest result ends a sequence of six consecutive quarters of a positive net balance for turnover, but has not turned this measure negative as last experienced in summer 2013.

The overall net balance of turnover for firms in the production sector in the last three months was -4 per cent. This is significantly down on the +12 per cent of the previous quarter and the +16 per cent of the same quarter one year ago.

Service firms showed an overall net balance for turnover for the three months ending February of +4 per cent, well down on the +19 per cent of the previous quarter and the +20 per cent of the same quarter one year ago. Both sectors are showing a sharp slowdown.

Volumes of repeat business have fallen. The overall net balance of +1 per cent is sharply down from the +15 per cent of the previous quarter and the +10 per cent of the same quarter one year ago.

Trends in the volume of new business are equally negative in the latest three months with an overall net balance of +2 per cent compared to +18 per cent of the previous quarter and the +22 per cent of the same quarter one year ago.

Export activity is one of the few areas where a positive trend has emerged. The overall net balance for export activity at +6 per cent is an improvement on the -4 per cent of the previous quarter but is still below the +12 per cent 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 countries but will be hampered by the rise of sterling against the Euro as Quantitative Easing (QE) proceeds.

Firms’ assessment 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.

However, despite the poor experience at the start of this year, expectations remain high and close to the high levels evident pre-recession. This is the ninth successive Business Monitor showing a positive net balance for turnover expectations – the most optimistic sequence of results since seven and a quarter years.

Expectations for turnover in the next six months ending August 2015 are showing an overall net balance of +14 per cent. This is slightly down on the +19 per cent of the previous quarter but well down on the +37 per cent of the same quarter one year ago.

Whilst 46 per cent expect turnover to be static in the next six months, 34 per cent expect turnover to increase against 20 per cent who expect a decrease. Service firms are more optimistic than production firms, with service firms showing an overall net balance for turnover for the next six months at +19 per cent compared to +8 per cent for production firms.

The latest net balance for expected export activity for the next six months has fallen. The net balance reached +2 per cent - down on the +5 per cent of last quarter and the Monitor record of +42 per cent 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 +10 per cent for this quarter compared to +13 per cent for the previous quarter and significantly down +27 per cent for the same quarter one year ago.

Expectations for the volume of new business in the next six months were again optimistic but slightly down compared to last quarter with the latest net balance at +14 per cent - down on the +19 per cent of the previous quarter and down on the +34 per cent of the same quarter one year ago.

These expectation levels suggest the private sector of the Scottish economy will show trend level growth in the second quarter of 2015 recovering from a slowdown at the start of the year.

Donald MacRae, chief economist, Bank of Scotland (pictured) said: “The Scottish economy slowed at the start of 2015 but is expected to return to moderate growth in spring. Expectations have fallen slightly but remain close to pre-recession levels suggesting that growth will pick up in the second quarter of the year.”