By Kristy Dorsey

Scotland’s economy was one of the hardest-hit throughout the UK during March by the coronavirus outbreak, according to a key survey on private sector business activity.

The latest Purchasing Managers’ Index (PMI) published today by the Royal Bank of Scotland paints a predictably grim picture of the economic fall-out, with severe disruption across the board. The business activity index for the UK as a whole plunged from 53 in February to 36 last month, well below the level of 50 deemed to separate expansion from contraction.

The activity index score for Scotland – a combined measure of service sector and manufacturing output – took an even more dramatic tumble to 29.7, down from 50.1 in February. This was the second-worst score after Northern Ireland on 29.1.

Scottish firms also shed jobs at a faster rate than any of the other 11 nations and regions covered, with the cuts to payroll numbers the deepest since the PMI survey began in January 1998.

Nick Stamenkovic, senior economist at Royal Bank of Scotland, said is was very difficult to make any judgements on why Scotland was among those regions worst affected. With every part of the UK economy in uncharted territory, drawing meaningful comparisons is problematic.

“We are not talking about a recession like at the time of the financial crisis,” he said. “This is more akin to what happened in the 1930s, in that the UK economy and the global economy have come to a sudden stop.”

He added that he agreed with yesterday’s predictions from the Office for Budget Responsibility – the UK Government’s independent forecaster – that the British economy could shrink by more than a third during the second quarter of this year.

Mr Stamenkovic said recovery thereafter would depend on when lockdown measures are removed. Assuming these do not remain in place long-term, and there is no significant increase in infection rates thereafter, he expects economic activity will begin to pick up in the third or fourth quarter of this year.

During March, business activity across Scotland’s private sector declined at the quickest rate in the PMI’s 22-year history. The services sector recorded its steepest reduction on record, while the fall in manufacturing was the sharpest since early 2009.

The decline in Scottish order books was also the most dramatic on record. With client demand tumbling, firms’ expectations for future activity were at their weakest since the PMI first started gauging this measure in 2012.

The collapse in confidence was underlined by the fact that for the first time on record, firms in Scotland’s private sector are expecting activity to decline in the coming year.

Malcolm Buchanan, who chairs Royal Bank’s Scotland board, said the shockwaves from the Covid-19 pandemic will continue to take their toll on the economy for some time to come.

“With emergency measures still in place, and demand unlikely to recover in the near future, March data paint a worrying picture for the Scottish private sector,” he said.. “The impact of the Covid-19 pandemic is likely to be felt for several months to come.”

Levels of outstanding business within Scotland’s private sector continued to decline, as had been the case in all but one of the last 18 months. According to panellists, weak demand as a result of the pandemic allowed them to direct remaining resources towards completing unfinished work.

Lack of demand has undermined companies’ ability on pricing, with Scotland again faring the worst of the 12 UK regions. This was the first fall recorded since July 2016, and the sharpest since the PMI first began monitoring this indicator in November 1999.

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