Lloyds TSB says Scotland is on right track to a slow recovery

Published on Sunday 3 January 2010 20:47

SCOTLAND has entered the new decade on the path to economic recovery but will make only a "slow and tentative" return to growth, a highly-regarded report claims today.

&#149 The Scottish Government's economic adviser Dr Andrew Goudie

A substantial pick-up in export activity and a revival among production businesses will finally tip the Scottish economy back into growth in the first three months of this year, according to the latest Lloyds TSB Scotland Business Monitor.

However, a deterioration of conditions in the important services sector and other continued economic challenges will mean that a full recovery is not likely until the end of the year, the influential report predicts.

The Lloyds TSB survey, which is produced by the University of Strathclyde's Fraser of Allander Institute, supports a string of other recent reports such as last month's Purchasing Managers Index (PMI), which suggest that the economy will finally emerge from recession in the first quarter of 2010.

However, many economists, including the Scottish Government's own economic adviser, Dr Andrew Goudie, fear the recovery will be timid and protracted, with growth rates likely to lag behind the rest of the UK.

The majority of the nearly 400 Scottish businesses surveyed for the Lloyds report predict that increased export activity will be the greatest driver of the recovery.

Expectations for export activity hit their highest level for four and a half years and recorded the tenth best result since the quarterly monitor began 12 years ago. Production businesses are also set to commence the new year on the front foot, with firms reporting a net balance on turnover of -2 per cent, up from -24 per cent in the previous quarter.

Expectations for both new and repeat business orders have also increased across all sectors, with the volume of new business orders forecast to rise by 7 per cent in the first quarter of this year.

Turnover expectations have similarly moved into positive territory for the first time in 15 months, although the research suggests that Scots firms are only expecting mild improvements in turnover.

The news is less positive from the services sector, which accounts for the lion's share of private sector output in Scotland. Service businesses reported a slight worsening of conditions during the past three months although trading conditions remain vastly improved since the same quarter in 2008.

Donald MacRae, chief economist at Lloyds Banking Group in Scotland, said: "In 2008, the Scottish economy entered the worst recession for decades and experienced a sharp and large fall in output. Since then, the Business Monitor has shown a gradual improvement from the low point of last year.

"This latest Monitor shows the Scottish economy set to emerge from recession with improvements evident in turnover, orders and employment.

"However, the recovery will be slow and tentative with many sectors delaying a recovery into growth until well into 2010."