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Firms are upbeat as economy recovers

RECOVERY in the Scottish economy has strengthened slightly in the latest three months and companies are extremely upbeat about export prospects, a survey has revealed.

SPARKING TO LIFE: Recovery is strengthening and Scots companies are feeling more upbeat about the future.
SPARKING TO LIFE: Recovery is strengthening and Scots companies are feeling more upbeat about the future.

The latest quarterly business monitor, published today by Bank of Scotland, signals a modest acceleration in the rate of growth of activity in both the production and services sectors north of the Border.

Meanwhile, Scottish companies are more upbeat about export prospects on a six-month view than they have been at any point in the 16-and-a-quarter-year history of the business monitor.

The latest survey, covering the three months to February and conducted by Strathclyde University's highly-regarded Fraser of Allander Institute, shows that 41% of Scottish firms increased turnover, while 23% experienced a fall in sales, with 36% reporting a static position.

Subtracting the proportion encountering a fall from that experiencing an increase, the resultant net 18% reporting a rise in turnover was an improvement on a corresponding balance of 15% in the previous quarterly business monitor. Bank of Scotland highlighted the fact that this latest reading was the second-strongest in six-and-a-half years for this survey question on turnover.

In the survey covering the three months to February 2013, a balance of 5% of Scottish companies had reported a fall in turnover.

A net 16% of Scottish production companies reported a rise in turnover in the latest survey, an improvement from a balance of 12% in the previous quarterly monitor.

For the three months to February 2013, a balance of 2% of Scottish producers had reported a rise in turnover.

In the latest survey, 40% of Scottish production firms achieved a rise in turnover and 24% experienced a decline.

Among Scottish companies in the dominant services sector, a balance of 20% reported a rise in turnover in the latest survey, with 42% achieving an increase and 22% recording a fall. In the previous quarterly monitor, a net 17% of Scottish services companies had reported a rise in turnover.

The latest reading for the movement in services firms' turnover is in stark contrast to that a year earlier. In the survey covering the three months to February 2013, a net 9% of Scottish services companies had reported a fall in sales.

A net 12% of Scottish companies reported a rise in export activity in the three months to February this year, with 32% achieving an increase and 20% experiencing a fall.

This was a marked turnaround from the previous quarterly survey, in which a balance of 14% of Scottish firms reported a decline in export activity. And, in the survey covering the three months to February 2013, a net 5% of Scottish firms had reported a fall in exports.

In the latest survey, 35% of Scottish producers reported a rise in export activity in the three months to February and 24% experienced a fall. Among services companies, 29% reported a rise in export activity and 15% encountered a drop.

A net 42% of Scottish firms predicted a rise in export activity over the coming six months in the latest monitor. This represented a marked improvement from a balance of 21% forecasting a rise in exports on a six-month view in the previous quarterly survey.

Bank of Scotland highlighted the fact this 42% balance anticipating a rise in future export activity was the highest recorded in the history of the business monitor. This optimism about future export activity comes at a time when official figures have continued to signal the UK manufacturing sector as a whole has been struggling to raise sales in overseas markets, hampered in part by the recent strengthening of sterling.

The Office for Budget Responsibility forecast last week, when Chancellor George Osborne delivered his fifth Budget, that net trade would prove a drag on UK growth this year.

Scottish firms were also upbeat about the prospects for their overall turnover over the next six months, in the latest business monitor. A balance of 37% predicted a rise in turnover on a six-month view, with both producers and services companies upbeat. This was a significant improvement on a balance of 16% predicting such an outturn in the previous quarterly survey.

Donald MacRae, chief economist at Bank of Scotland, said: "The surge in economic activity identified in summer 2013 has been maintained through autumn and winter with the latest quarter showing the second-best result in six-and-a-half years.

"Expectations for 2014 are at their highest level since mid-2007, suggesting the recovery will continue throughout 2014 and will become increasingly embedded. An increase in investment by firms would further enhance the recovery."

Fraser of Allander this month raised its forecast of growth in Scotland in 2014 from 1.8% to 2.3%.

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