THE Scottish manufacturing, construction, retail and tourism sectors all enjoyed rising activity and confidence in the fourth quarter, but recovery is fragile and big challenges remain, a key survey has found.

The survey, published today by Scottish Chambers of Commerce, highlights declining cash flow for manufacturing firms and the importance of access to finance to enable investment. It also shows that growth in manufacturers' exports in the fourth quarter was only marginal.

Data published yesterday by the Scottish Government showed gross domestic product north of the Border grew by 0.7% quarter-on-quarter in the three months to September. This was only slightly adrift of 0.8% growth in the UK as a whole in the third quarter.

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The Scottish GDP figures showed both the services and construction sectors grew by 0.7% in the third quarter. The production sector grew by 0.6%.

Scottish Chambers' survey, which is conducted by Strathclyde University's Fraser of Allander Institute, reveals a dramatic rebound in confidence in the construction sector in the fourth quarter.

Of construction firms surveyed, 34.6% reported a rise in business optimism and only 11.5% a fall, with the remainder declaring unchanged sentiment. The net 23.1% declaring an increase in optimism was a huge improvement on a balance of 3.7% reporting a decline in the previous quarter.

The fourth quarter was the first period since 2007 in which the proportion of construction firms declaring a rise in optimism exceeded that reporting a decline.

In spite of a continuing sharp fall in orders from the public sector, a balance of 28% of construction firms reported a rise in total new contracts in the fourth quarter, with 48% enjoying an increase and 20% experiencing a decline. In the previous quarter, a balance of 18.5% of firms in the sector reported a fall in total new contracts.

The latest survey points to the fastest pace of growth of total new contracts for Scottish construction firms since 2007. But Scottish Chambers noted that construction firms' cash flow continued to decline, albeit at a slower pace.

Manufacturers also reported a big improvement in optimism, with 35.5% more confident and only 13.2% less hopeful.

A net 13.1% of manufacturers reported a rise in total new orders in the fourth quarter, with 34.2% enjoying an increase and 21.1% experiencing a fall. However, only a net 1.4% of Scottish manufacturers reported a rise in export orders. And only 20% of manufacturers reported a rise in cash flow over the past three months, with 25.7% experiencing a decline.

Garry Clark, head of policy and public affairs at Scottish Chambers, said: "One area of potential concern is the low cash flow that some manufacturers are reporting. This makes it even more important that businesses have access to finance in order to fund investment for growth.

"This is particularly true for small and medium businesses, since investment levels will require to grow if the recovery is to become more broadly based and sustainable."

Scottish Chambers flagged a surge in optimism among tourism providers, ahead of this year's Commonwealth Games and Ryder Cup.

Among tourism providers, 37.3% reported a rise in optimism, and only 5.9% were less hopeful. Scottish Chambers noted the net 31.4% reporting improved optimism was the strongest reading since 2006. And a balance of 47.6% of respondents in the tourism sector reported a rise in demand in the fourth quarter.

Mr Clark said: "At the beginning of the Year of Homecoming, optimism is high in the Scottish tourism sector, following a strong end to 2013.

"Though expectations for the beginning of 2014 are modest, occupancy levels are higher than they were a year ago and bar and restaurant trade is improving."

He added: "Overall, tourism optimism is at an eight-year high and with ... events such as the Ryder Cup, Commonwealth Games and MTV Europe Music Awards coming to Scotland this year, there is every opportunity to succeed and to ensure that the legacy is fully realised."

Of retailers surveyed, 41.7% reported a rise in sales in the fourth quarter and only 22.9% experienced a fall. A balance of 4.2% of retailers reported a rise in optimism. However, retailers expected a continuing squeeze on profitability.

The wholesale distribution sector was the only one covered by Scottish Chambers' survey to report a fall in activity in the fourth quarter, with a balance of 5.6% of firms reporting a decline in sales. Wholesale firms also experienced a further decline in optimism, with 27.8% less confident and only 5.6% more hopeful.

Scottish Chambers said of its overall survey results: "The recovery still remains fragile. The rise in business confidence in this latest survey is welcome, but significant challenges and concerns remain. Cashflow continues to be an underlying concern in key sectors, and this may have the effect of delaying business expansion to meet the growing levels of demand."

The survey signalled a mixed employment picture. The manufacturing and retail sectors reported increases in staffing.

But there were overall declines in employment in the construction, wholesale and tourism sectors.