Bill Jamieson: Not easy to see green shoots for the weeds

Pessimists are liable to overlook the good news lurking in the undergrowth. Picture: Getty
Pessimists are liable to overlook the good news lurking in the undergrowth. Picture: Getty
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Beware of sweeping generalities – the everyday resort of politicians and, I confess, business writers. Nothing is ever as happily Arcadian or as hopeless as often described.

Dissonance and incongruities abound. I look out on a garden in the Highlands that can fairly be described as more shabby than chic. The lawn is riddled with weeds. The paths battle against rampant ground elder. Trees and hedges are in need of a prune. Deer and rabbits are a constant menace.

But through this, the roses still surge forth, providing cheer amid the struggling borders and dismal appearance of neglect. There is beauty to see, for those who pause to look.

Our economy is in a similar state. The overall macro outlook is troubling: slowing growth and growing pressures on household incomes and spending. Here in Scotland, the numbers look particularly dismal. With the slump in North Sea oil activity, we are going through a very difficult period. The latest official statistics show a 0.2 per cent fall in GDP in the last three months of 2016. If first quarter numbers show a similar decline then we will officially have passed into recession.

Yet this generality misleads. There are areas that belie the overall impression of downturn and that are doing well. And recent survey evidence and data bears out this more nuanced view.

Last week we heard that Scotland’s engineering and manufacturing sector recorded its third strong quarter in a row. The latest Scottish Engineering quarterly review finds an improvement in orders and output on the previous two three-month periods, and with “particularly strong” growth in staffing levels.

The survey found the balance of firms’ trading positions strongly positive. And the Bank of England’s agent in Scotland said firms had moved beyond their initial “post-referendum gloom”, with evidence they were shifting suppliers to the UK to capitalise on the weaker pound.

According to this survey of 320 companies, positive output figures were reported by electronics firms, fabricators, machine shops and mechanical equipment businesses.

Specifically, it found a gap of 12 percentage points between those saying output was up and those saying it was down – 36 per cent to 24 per cent. That gap rose to 30 points on those who said exporting activity was above normal – 43 per cent to 13 per cent. This suggests that exporting performance has ended 13 quarters of negative figures.

UK orders in general were similar to the first quarter, while export orders also remained positive. Employee numbers overall showed a “marked improvement” across small, medium and large companies over the previous quarter.

In general terms, levels of optimism among small and medium-sized firms remained positive, though there was a more negative outlook from large companies.

Machine shops had a particularly strong showing, with 63 per cent of firms saying activity was up after tough times due to the oil and gas downturn. In exports, transport and metal manufacturing were strongly positive, with a 50-point positive gap in the transport sector.

But this was not the only sector to provide some encouragement. Across the UK as a whole, construction growth rebounded to a 17-month high in May.

The seasonally adjusted IHS Markit/CIPS UK Construction Purchasing Managers’ Index posted 56.0 in May. A sharp and accelerated rise in residential work was a key factor supporting overall construction activity. The housing sub-category rebounded strongly following the seven-month low in March and the latest increase in residential building was the fastest since December 2015.

Survey respondents cited a strong pipeline of new development projects and resilient underlying demand conditions. May data also pointed to solid rises in civil engineering and commercial building. Although commercial development remained the weakest performing sub-category, the latest rise in activity was the fastest since March 2016. New business intakes picked up in May, with the rate of expansion the fastest seen so far in 2017.

Increased workloads underpinned a further marked rise in employment across the construction sector. The rate of job creation accelerated for the second month running to its strongest since January 2016.

Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS survey, said: “The UK construction sector has started to recover strongly from its slow start to 2017.

“House building was the key growth driver, with work on residential projects rising at the fastest pace since December 2015. A sustained rebound in residential building provides an encouraging sign that the recent soft patch for property values has not deterred new housing supply.”

Nor is this resilience confined to metal bashing and bricklaying. Latest Scottish tourism statistics are encouraging, showing a six per cent rise in foreign overnight visitors in 2016. This followed a four per cent fall in the previous year and suggests that the sharp fall in the pound following the Brexit referendum vote last June may have boosted overseas tourist visits to Scotland. Higher airport passenger numbers in April at Glasgow (up 8.9 per cent) and Edinburgh (up 13 per cent) may also be reflecting growth in tourist visits.

Finally, it may well be the case that the Scottish Government’s official measure of the economy in the first quarter was over-pessimistic and due a revision. That shouldn’t blind us to the fact that our overall growth rate is still lagging well behind the UK and looks set to remain so.

Inverness-based economist Tony Mackay is currently forecasting growth of just 1.2 per cent in Scottish economic output this year, rising to 1.7 per cent in 2019 – both well below the historic long-term growth average of two per cent.

A sweeping generalisation that all is gloom and despond would not be accurate. Encouraging blooms are to be found. But it is not until we see a sustained recovery in the oil price and a return of confidence in the North Sea oil sector that a more general uplift can provide real cheer. That’s all the more reason for economy minister Keith Brown to listen to what Scotland’s business sector is telling him on business rates and taxation. Over the next 12 months, much critically depends on higher investment and expansion activity.