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Firms remain optimistic

Scottish private sector economy ‘stagnates’

Wireline industryScotland’s private sector economy broadly stagnating during March, with activity rising only marginally since the previous month and new business continuing to show only minimal growth.

Although companies retained a degree of optimism regarding future activity, continuing levels of spare capacity meant that employment levels were barely changed, March’s Bank of Scotland Regional Purchasing Managers’ Index showed.

Whereas manufacturing output continued to rise considerably, this was broadly offset by a modest reduction in service sector activity. 

March data signalled continued steep inflation of input prices, albeit the lowest in six months. Firms, particularly those in the manufacturing sector, commonly reported that unfavourable exchange rates had led to an increase in input costs. Higher wages were also reported to have pushed up operating expenses.

Firms continued to respond to higher operating costs by increasing their own charges. Although the degree of inflation was the lowest of the year so far, it remained notable.

Fraser Sime, regional director, Bank of Scotland commercial banking said: “The economic upturn of Scotland’s private sector economy lost momentum at the end of the first quarter. A muted demand for goods and services resulted in only a marginal increase in new business inflows, which in turn caused activity levels to broadly stagnate.

The overall message is more balanced, however, as businesses created jobs over the month and sentiment remained broadly positive. These developments suggest that the Scottish economy will likely return to growth as we head into the second quarter.

“Looking at the detailed sector numbers, we can see that Manufacturers performed better than their Services counterparts, with factory production still rising at a pronounced rate, but Services activity dipped for the first time in four months.”

> Confidence levels within Scotland’s business community have stabilised, but remain below the UK and Eurozone averages, according to Grant Thornton’s International Business Report.

The findings suggest 15% of Scottish business leaders are confident about trading conditions over the next 12 months.

The figure is modestly higher than the final quarter of 2016 (14%) but remains substantially below the Eurozone and UK, at 39% and 20% respectively. Meanwhile, half of all Scottish business leaders questioned are confident that turnover will rise in the next year, down from 65% last quarter.

An average of 50 business leaders from a wide range of sectors and company sizes throughout Scotland are questioned every quarter as part of Grant Thornton’s global survey of more than 2,600 businesses in 36 economies.

The International Business Report’s Quarterly Survey aims to take a snapshot of economic conditions locally, regionally and globally, to offer some insight into the challenges and opportunities that lie ahead over the coming year.

This quarter’s data reflects the ongoing challenging economic and political conditions facing Scotland as uncertainty remains over the country’s future within both the United Kingdom and the European Union.

Debbie Mayor (right), head of international at Grant Thornton in Scotland, said: “The latest data is a fair reflection of current conditions in the Scottish marketplace. There is a sense of fatigue with the current political deadlock, but also a real resilience and commitment to continue to grow sustainably, despite the challenges that lie ahead.

“What the Scottish marketplace really needs is clarity from political leaders. The country depends heavily on access to the single marketplace for everything from exporting to employing skilled EU workers. A potential hard Brexit throws this into doubt, but a clear action plan that places collaboration and sustainability at its heart to mitigate some of the potential long term damage.”

Globally, confidence levels appear to be on the rise, with 49% of businesses optimistic about the future – up from 38% in 2016.

Meanwhile, despite Brexit and the rise of Euro-sceptic political movements in various countries, the EU’s optimism levels, while below the world average, have also risen, from 34% to 39%. In the US, a complex picture has emerged following the election of Donald Trump.

Expectations for revenue and profitability among American businesses have fallen from 58% to 52% and from 55% to 52% respectively. But, general confidence levels have risen substantially from 38% to 49%.

 

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