The Scottish economy is heading fast into recession, and most firms expect credit to be scarcer and more expensive this year despite the government�s exhortations to banks.
The Scottish economy is heading fast into recession, and most firms expect credit to be scarcer and more expensive this year despite the government's exhortations to banks.
The findings come from the latest business monitor published by Lloyds TSB, one of the banks at the eye of the political storm over credit.
In a low-key section of the report the bank admits: "Concerns over credit availability have risen strongly amongst both types of businesses to the highest level ever seen in the business monitor. Both sectors see the cost of credit increasing over the next three months despite the fall in base rate."
The bank's chief economist, Professor Donald Macrae, said of the main findings: "The Scottish economy has entered a severe slowdown which has yet to hit the bottom."
He went on: "All business types are showing a slowdown in business volumes, falling turnover and a lack of repeat and new business. Expectations for the next six months have fallen at a faster rate than actual experience of the last three months. This has been reflected in the slowing annual rate of retail sales growth at 2.8%, falling consumer confidence and rising claimant unemployment, although from a low level."
The report shows the downturn in the Scottish economy intensifying in the three months ending November 2008, with 51% of com- panies reporting a decrease in turnover and 20% an increase, creating a negative balance of 31%.
"This is more than three times the -10% of the previous quarter and a huge drop from the +16% of the same quarter in 2007," says the report. "The implication is that growth in the private sector of the Scottish economy has not only slowed dramatically but has reversed into a contraction. This is the most negative result in 11 years of the business monitor."
Service businesses are faring worse, with a negative balance of 35% compared with 20% three months earlier.
Production businesses are showing a less marked decline, with a negative balance of 23% against a positive 6% the previous quarter. "Both results are consistent with falling output and if maintained, a recession," says the report.
According to Scottish Government data, output in the production sector grew by 0.2% and in services by only 0.1% in the second quarter of 2008.
"The volumes of repeat and new business have slumped in the service sector for the second quarter in succession," the report says.
The number of service firms experiencing a fall in turn-over due to lower volumes of repeat business was almost four times those who reported an increase giving an overall negative balance of 31%, while for new business it was a negative 38%.
For production firms, only 15% of businesses reported an increase in repeat business turnover, with 35% reporting a decline, and a similar negative balance for new business.
Expectations of increasing turnover in the next six months continued the slump identified in the last three months, the report says. "The overall net balance for turnover in the next six months is -44%, a 57% worsening from the -28% of the previous quarter and a huge fall from the +17% of the same quarter one year ago." Service businesses are again the most pessimistic with the overall net balance for increasing turnover in the next six months at a negative 50% compared to 34% for the previous quarter and a positive 13% a year earlier.
In the service sector, 60% of firms expect a decline in turnover, while in production 49% are pessimistic. "Both types of firm are increasingly pessimistic about the level of demand for their products and services in the next three months," the report says.
In one of the few optimistic assessments of the future, all firms cite the importance of the general rate of inflation falling in the next three months.
Concerns over the importance of late payment have increased, as have anxieties over cash flow. The importance of staff availability has declined sharply, while cost inflation has reduced.
The report adds: "House prices in Scotland have avoided a major price fall so far, although sales and purchase numbers have reduced significantly."
