Scotland’s economy ‘on road to recovery’

Donald MacRae, chief economist at Bank of Scotland. Picture: Contributed
Donald MacRae, chief economist at Bank of Scotland. Picture: Contributed
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SCOTLAND’S economic recovery appears to be back on track with relatively high levels of confidence for the rest of the year, according to the Bank of Scotland’s latest business survey published today .

The bank’s latest Business Monitor report shows the Scottish economy recovering from the slowdown seen at the start of the year and reversing a negative trend identified in the previous six months.

Earnings growth is now exceeding the rate of consumer price inflation

Donald MacRae

Expectations for the rest of the year have improved to the fourth best level in more than seven years.

Donald MacRae, chief economist at Bank of Scotland, said: “The Scottish economy slowed at the start of 2015 but is expected to return to moderate growth in spring and summer.

“Expectations remain close to pre-recession levels suggesting that growth will pick up in the second quarter of the year.”

In the three months to the end of May, 36 per cent of firms surveyed increased turnover, 35 per cent experienced static turnover, and 29 per cent experienced a decrease.

This gave a net balance of +7 per cent, up from the zero per cent of the previous quarter but well down from the +28 per cent of the same quarter one year ago.

The survey found that the service sector is showing stronger growth than the production sector. Concerns over credit availability increased slightly for production firms but fell for services firms while concerns over credit costs were up for service businesses and down for production companies. It also identified a significant fall in export performance.

The bank said exporting to eurozone economies should become easier as growth picks up in many of the currency bloc’s member countries but is being hampered as the rise of sterling against the euro as quantitative easing (QE) takes effect.

Although cost pressures increased in the latest quarter, expectations for future increases have fallen with more than half of firms expecting costs to remain static over the next six months.

The report said that falling unemployment was contributing to high levels of consumer confidence.

“This is being expressed through moderate increases in consumer spending accompanied by a fairly constant rate of saving. Earnings growth is now exceeding the rate of consumer price inflation maintaining both consumer confidence and the current rate of saving,” noted MacRae.

Separate figures from Clydesdale Bank yesterday showed that Scots small and medium-sized businesses (SMEs) which export believe international sales will increase in the next 12 months.

Its survey also suggests that more than 22,000 SMEs in Scotland which currently do not export intend to start selling their goods and services internationally in the next year.

In total, exporting businesses are anticipating international sales to make up 20 per cent of their total annual turnover and more than half expect sales to increase in the same period.

The latest economic commentary from the Fraser of Allander Institute was due to be published today with an update expected on its growth forecasts for the Scottish economy in 2015 and 2016. The last report, in March, estimated that the economy expanded by 2.8 per cent last year, making it slightly more dynamic than the UK as a whole.

The institute upped its forecasts for 2015 and 2016 to 2.6 per cent and 2.4 per cent respectively. Inverness-based Mackay Consultants has forecast growth this year of 2.4 per cent.