By Ian McConnell

SCOTTISH private-sector economic output continued to plummet in May amid the coronavirus crisis and associated lockdown restrictions, although at a slower rate than in April, and companies shed staff at a rapid pace, a key survey shows.

Royal Bank of Scotland’s latest PMI (purchasing managers’ index) report also shows the contraction in the economy north of the Border was the second-sharpest among the 12 nations and regions of the UK in May. Only Northern Ireland saw a faster decline. The business activity index for Scotland – a combined measure of manufacturing and services sector output – rose from 10.7 in April to 21.1 in May on a seasonally adjusted basis. However, it remained way below the level of 50 deemed to separate expansion from contraction, and signalled the second-fastest rate of decline in the 22-year history of the survey.

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The rate of job-shedding in May was slightly slower than in April but was the second-fastest on record. The pace of decline in employment was slower in Scotland than in the UK as a whole.

The volume of new work received by private sector firms in Scotland continued to plunge in May, at a slower pace than in April but at the second-fastest rate since data collection began in January 1998.

Royal Bank noted that anecdotal evidence linked the fall to “temporary business closures and weak client demand amid continued lockdown restrictions as a result of the Covid-19 pandemic”.

The decline in new business was again faster in services than in manufacturing in May, although the fall was softer in both sectors last month than in April.

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Companies in Scotland signalled improved optimism in May about the prospects for increased activity on a 12-month time horizon. The future output index was above the 50 no-change mark for the first time since February, with respondents linking optimism to looser lockdown restrictions and hopes of an economic recovery. Royal Bank noted sentiment nevertheless remained among the lowest on record, with only Northern Ireland registering weaker optimism.

Malcolm Buchanan, who chairs Royal Bank’s Scotland board, said: “The Scottish private sector continued to be affected by the Covid-19 pandemic in May, with latest data highlighting further rapid declines in both activity and new business. The rates of contraction softened from April’s records, but were still the second-quickest in over 22 years of data collection. With demand essentially frozen, companies continued to make substantial reductions to workforce numbers.”

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He added: “With restrictions easing, sentiment regarding activity over the year ahead returned to a positive footing as businesses look set to reopen and amid hopes of improved demand and an economic recovery. Overall, conditions in the Scottish economy remain extremely challenging. Although data indicates that the downturn has bottomed out, the pandemic has dealt an unprecedented blow to the economy.”

The Scottish Government published updated modelling on Friday showing the economy “faces a gradual recovery from the coronavirus…crisis”. Analysis by Scottish Government chief economist Gary Gillespie suggests output may not recover to pre-crisis levels until the start of 2023. The Scottish Government noted this highlighted “the scale of the challenge facing the nation”.