Business growth slowed at the beginning of this year but there are hopeful signs of an upturn in the months ahead, according to a new temperature check on the Scottish economy.
Two in five firms reported that their total volume of business fell compared to just one in five (21 per cent) who witnessed an increase in activity between December and February, according to the first Royal Bank of Scotland business monitor.
Business activity, new business volumes and investment all weakened over the quarter but firms expect a modest upturn in turnover and activity in the medium-term.
The research, conducted by the Fraser of Allander Institute, also shows that firms are reporting falling exports.
The main cause of slowing growth appears to be the weakening oil price, with businesses surveyed in the North East reporting weaker performance across the quarterly report’s indicators.
Just over one in five (22 per cent) of firms said that turnover rose while more than two in five (43 per cent) reported that it fell. The balance, -21 per cent, is the lowest since comparative studies for the first quarter of 2010 and compares with a balance of +1 per cent in Q4 2015.
Stephen Boyle, chief economist at RBS, said the results were disappointing “but not surprising”.
“Slowing growth in the first quarter has largely been visited on Scotland from outside through a combination of the low oil price and weak export demand,” he said. “Against this backdrop it’s encouraging that firms expect a modest rebound in growth over the next six months.”
The report shows that inflation remains subdued. Although one in three firms reported that costs rose, one in eight saw costs fall. A net 21 per cent of firms expect costs to rise in the six months to August.
In terms of investment level, one in five firms (21 per cent) reported that new capital investment purchases increased while almost one in three said that it fell. Just one in six firms said that export activity rose, while two in five (39 per cent) saw it fall.
A net 23 per cent of firms expect exports to fall in the six months to August.
Malcolm Buchanan, chairman of Scottish operations at RBS, added: “The findings echo what we are hearing day to day from our customers – the Scottish economy is experiencing some headwinds, but our customers see opportunities in the long run.”