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Scottish recovery improving but still faces challenges

THE Scottish recovery is becoming more broad based but still faces a number of challenges, according to a long-running study.

The Scottish Chambers of Commerce quarterly business survey, the latest edition of which is published today, said a large number of key indicators across sectors had returned to levels not seen since 2007.

The research, conducted by Strathclyde University's Fraser of Allander Institute, suggested this meant the worst of the recession may now be over.

Liz Cameron, chief executive, said: "All the indicators in this survey point to sustained economic growth as key sectors increase investment to expand activity, boosted by higher levels of business optimism."

Many companies are starting to invest more, with spending intentions in the manufacturing industry at higher levels than at any time in the past six years.

That is backed up by steady order growth in the sector - more than 44% saw greater orders in the first quarter and a further 41.7% said intake was level. As a result, 55% expect turnover to increase across the next 12 months and 42% are forecasting a rise in profits.

While construction investment remains low, it did not decline in the first quarter of this year and almost 90% of firms questioned expect to maintain or grow employee numbers in the coming three months.

More than 32% said orders were up in the period, with 91% expecting similar or better levels of business in the coming months.

Almost 90% of tourism businesses were either more optimistic or at a similar level in a year when the Commonwealth Games and Ryder Cup both come to Scotland. More than 26% expect increasing demand as the year goes on.

However, there were a number of notes of caution in the research, with retailers and wholesalers forecasting little prospect of increases in profitability this year and cash flows still problematic across many sectors.

The survey said: "The pace of the recovery in the Scottish economy is accelerating and is becoming more broadly based. However, for some sectors ­trading conditions are still harsh, suggesting that the recovery remains fragile and policy action may be required to ensure that it is sustainable.

"Growth is still, to an extent, reliant on household spending and in order to sustain growth over the longer term, an increase in investment and net exports as well as manufacturing and construction activity is needed."

Manufacturers and tourism businesses also highlighted skills shortages, with particular difficulty recruiting experienced management and technical staff.

The Scottish Chambers said there was still fragility in the recovery and further measure may need to be taken to ensure it stays on course.

Ms Cameron said: "The issue of skills shortages is becoming more prominent as businesses look to expand and invest. Governments in Scotland and the UK must facilitate opportunities for businesses to access affordable finance, particularly as cash flow remains a pertinent issue for businesses in construction and manufacturing."

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