Three new forecasts

Uncertain outlook for Scottish economy

Wireline industryThree forecasts published this morning reflect a degree of uncertainty about the Scottish economy’s direction.

The overall view is that there is still a degree of resilience helping firms to withstand global pressures, with tight control of costs becoming more of a priority.

There is some contradiction in labour market trends, with the more optimistic Grant Thornton surveying pointing to more hiring and higher salaries, while Bank of Scotland says firms continue to reduce staff numbers. BDO is the most pessimistic, suggesting confidence is at a three year low.

  • Scotland’s businesses plan to employ more staff and increase salaries in 2016, according to Grant Thornton.

Despite uncertainty over oil and gas prices and the long term future of the country’s largest sector, more than half (56%) of Scottish respondents believe their profits will increase this year. The figure is substantially higher than the global average of 44%, but slightly below the 63% of UK-wide respondents predicting a rise in profitability.

Meanwhile, almost half of those questioned (46%) plan to increase headcount over the next twelve months – across the European Union, the figure is 28%, slightly less than the global average of 31%.

Debbie Mayor, associate director of advisory at Grant Thornton in Scotland, said: “Despite the shifting world landscape, our research suggests Scotland’s businesses are resilient and are optimistic about growth in the year ahead.”

…on the other hand…

  • The Scottish private sector remained in growth territory during January, but firms continued to cut jobs, according to the Bank of Scotland purchasing managers’ index.

The rate of job shedding accelerated at its fastest since July 2015, said the bank. Despite a rise in new orders and business activity, volumes of outstanding business deteriorated for the thirteenth successive month.

The latest weak expansion in output was led by Scotland’s service providers, while goods producers reported a contraction.

Survey data for January indicated a modest increase in new orders in Scotland’s private sector, as the rate of growth accelerated to a five-month high. Moreover, incoming new business in services has risen in every survey period since March 2015.

Scotland’s private sector recorded a further contraction in employee numbers during January. The rate of job shedding quickened from December but was relatively weak. Job cuts were evident in both the manufacturing and service sectors with some panellists linking the fall to a combination of higher wage costs and the downturn in the oil industry.

Backlogs of work continued to decline during January, signalling ongoing spare capacity in the private sector of Scotland. While manufacturers reported a sharp depletion of outstanding business volumes, work-in-hand fell at a comparatively modest rate in Scotland’s service sector.

Alasdair Gardner, Bank of Scotland regional managing director Scotland – commercial banking, said: “Growth in Scotland’s private sector remained in a low-gear during the first month of 2016 as service providers continued to outperform their manufacturing counterparts. Firms reported a further lack of pressure on capacity throughout the private sector, yet this was not enough to halt the current upturn in the Scottish economy.”

…and this more cautious outlook is confirmed by BDO…

  • Business confidence in Scotland has fallen to a three-year low, according to the latest Business Trends Report by BDO.

Its Business Optimism Index – which predicts growth six months ahead – has declined to 100, the tipping point below which firms expect their output growth to drop under the long term trend rate.

Martin Gill, Head of BDO in Scotland, said: “Many business owners have lost confidence and it is hardly surprising. China has cooled significantly, there are growing concerns over individual and corporate debt levels, and the low oil price continues to have an adverse impact on the Scottish economy. The added uncertainty of an EU referendum just round the corner is also fuelling concerns.”

*Daily Business Services Event 1 

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