Industry 'can lead Scotland out of recession next year'

Published on Wednesday 15 April 2009 21:32

SCOTLAND'S embattled manufacturing sector has the resilience to "lead the economy from recession" next year, amid fresh signs the current downturn may be nearing a floor.

Publishing its latest quarterly economic survey today, the Scottish Chambers of Commerce (SCC) admitted that business confidence had been "battered" over the past year, with further pain to come.

However, the report – produced in conjunction with the highly regarded Fraser of Allander Institute – also highlighted "some positive indications" in the economy.

It said Scottish manufacturers were anticipating a "modest" rise in export activity by this time next year while the tourism sector should receive a boost from the Year of Homecoming.

Almost 300 firms were polled for the first-quarter survey, which comes just days after Royal Bank of Scotland's purchasing managers' index (PMI) for March suggested the private-sector economy may be "beyond the worst" of the recession.

SCC chief executive Liz Cameron admitted today's survey threw up "few signs of improvement in the short term".

But she added: "In the midst of the current recession, we are all looking for signs of light at the end of the tunnel and a closer examination of the figures does reveal that, in some sectors, the rate of decline is easing, with a small number of businesses performing well against a challenging background."

Quizzed on confidence levels, there was a mixed response from those surveyed.

Three-quarters of manufacturers and just over 80 per cent of wholesale and retail respondents reported being less confident than a year ago. However, there was some pick-up in confidence among retailers and construction companies compared with the closing quarter of 2008.

Cost pressures – excluding finance costs – continued to ease across all sectors.

On the employment front, the proportion of manufacturing firms cutting staff increased "significantly" during the first quarter, although job-cutting among construction businesses eased.

No retailers increased or expect to increase their overall employment levels.

Cameron said many businesses were finding it difficult to invest in staff training amid budgetary pressures, and warned of the dangers this would present as the economy recovers.

"With business cash flow and margins becoming tighter and the nature of the labour market changing, training can often be a difficult area for both the private and public sectors to focus resources," she said. "However, skills shortages have only reduced in scale temporarily and we must redouble efforts to establish the skills our economy will need to grow and prosper if we are to avoid a skills crisis in two or three years' time."

The PMI report, released on Tuesday, revealed a further deterioration in operating conditions last month, but the rates of decline across many of the survey's key measures eased when compared with February.

The rate at which employers were found to be shedding jobs fell to the lowest level since October.

The key PMI business activity index – which measures firms' output – stood at 41.8 in March, up from 36.8 in February. Any figure below 50 indicates contraction.

Both sides of industry join forces to call for short-time working aid

BOTH sides of industry will today urge the UK government to introduce a temporary short-time working scheme to help people losing pay during the recession.

The TUC, British Chambers of Commerce (BCC), Engineering Employers Federation (EEF) and Federation of Small Businesses (FSB) have joined forces to argue that workers losing earnings through cuts in pay and hours should receive compensation. The Chancellor Alistair Darling should use next week's Budget to bring forward measures aimed at keeping workers in employment as well as helping firms stay in business, they urge.

The groups say similar arrangements are in place across the European Union, including Germany.

Brendan Barber, general secretary of the TUC, said: "UK unemployment is already over two million and is spiralling fast. Introducing a temporary short-time working scheme would help businesses stem the flow of job losses.

"Such agreements provide a quick and effective way to cut costs for struggling businesses and give hard-pressed employees vital financial help.

BCC director-general David Frost said: "It is absolutely crucial that our economy's skills base is protected during the downturn. The loss of skills, especially in manufacturing, will only act to stifle growth in the long term.

"Successful initiatives from previous recessions should be revisited and applied to the present climate – a short-time working scheme is one of them."

EEF chief executive Gilbert Toppin said: "In the current economic climate, it is vital that we give temporary support to help companies hold on to skilled workers who could otherwise be lost to the sector."

Alan Tyrell of the FSB added: "A short-time working scheme is something that would be of immense help to smaller employers in the UK during these difficult times."