Optimism is mixed with caution as the year begins

Falling oil prices could spook firms. Picture: BP/Contributed

When it comes to the prospects for the business community, a key indicator of future economic performance is optimism. The rise in global confidence in 2014 was a pleasant and very welcome surprise after a couple of tough years. However, a dip in optimism across the UK was recorded in the last three months of the year, although the drop in the last quarter was less pronounced across Scotland.

The recent downturn in business confidence suggests that companies fear there is trouble on the horizon. Indeed, we are already seeing evidence of the impact of this. How the wider issues such as the price of oil plummeting, uncertainty over the future of the eurozone, tensions in Ukraine and the forthcoming UK general election will affect Scotland is yet to be seen – though in some cases, the impacts are more obvious than others.

Fluctuations in oil prices, with the cost of a barrel tumbling to around $50, have potentially far-reaching and long-term consequences for Scotland.

Our recent Scotland Ltd report identified this as a sector which has been successful over a long period, built on substantial operating profits.

Therefore a long-term drop in the oil price could see a decline in exploration and a reduction in skills training. This is not good for a sector that has a well-documented skills gap pending. And given the importance of the sector to Scotland’s wider economy, the consequences could potentially have a substantial ripple effect.

There is speculation from oil industry specialists that the deflated oil price may increase as we go into the second quarter of the year, on the back of adjustments to supply and demand. Ultimately it comes down to the impact of uncertainty and risk – essentially how this affects business confidence.

Another sector worth mentioning is construction. Long beleaguered, it showed evidence of shifting up a gear last year. Proposed planning approval for six major developments across the Lothians hitting the headlines recently is clear evidence there is pressure to increase housing stock across Scotland. With the right support from industry and government it could enter full growth mode, which could have a positive knock-on effect on wider economic confidence.

Tumultuous times on the high street look set to continue, with Bank the first major casualty of the year. Retailers have had to react to a changing commercial landscape, fending off online competition while still attracting footfall and sales. Some foresee big players reducing the numbers of outlets and others going under because they can’t sustain the recent level of discounting.

The Year of Food and Drink Scotland 2015 initiative should provide opportunity for Scotland’s food, beverage and leisure sector to continue the impressive growth it has seen in recent years, which has been underpinned by the performance of exports. With the country’s global profile in food and beverage growing, Scottish firms could also benefit in 2015 from international firms looking to enter the Scottish market.

In our experience, a common thread throughout Scottish business is resilience. A dynamic, agile and entrepreneurial spirit has created robust, hungry and confident businesses. Such optimism should help Scotland weather the potential challenges on the horizon in 2015.

• Kevin Engel is managing partner for Grant Thornton in Scotland