Bank of Scotland

Scottish economy recovery set to continue

30 September 2014

The latest Business Monitor from Bank of Scotland shows the Scottish economy performing at pre-recession levels. Turnover trends are showing the best results since spring 2007 - over seven years ago. Expectations for the rest of the year remain elevated at levels comparable to 2007.

In the three months ending August 2014, 49% of firms surveyed increased turnover, 32% experienced static turnover, and 19% experienced a decrease. This gave a net balance of +30%, continuing the robust +28% of the previous quarter and a substantial improvement on the +23% of the same quarter one year ago.  This is the best result in over seven years and returns the net balance figure to pre-recession levels.

The overall net balance of turnover for firms in the production sector in the three months to end August 2014 was +35%. This is up on the +25% of the previous quarter and the +24% of the same quarter one year ago.

Service businesses are showing a similar pattern of improvement in performance. The overall net balance for turnover for the three months ending August was +27%, marginally down on the +29% of the previous quarter but improved on the +22% of the same quarter one year ago. Growth momentum has been maintained since the start of the year.

Volumes of repeat business remained at high levels in this latest quarter, with a net balance of +15%, which is up on the +12% of the previous quarter and much higher than the +10% of the same quarter one year ago. Trends in the volume of new business have been maintained with an overall net balance of +23% compared to +25% of the previous quarter and the +20% of the same quarter one year ago.

A recovery in export activity was evident in the previous two Business Monitors. This has been maintained in the latest quarter with the overall net balance for export activity at +13% - similar to the +14% of the previous quarter and well up on the -1% of the same quarter one year ago. This is welcome news for Scotland’s exporters.

Firms' assessment of their immediate prospects in the next six months was on a rising trend throughout 2013 and reached highs in the first two quarters of this year. This gain has been partially reversed in the latest quarter but is still slightly above the high levels of the second half of 2013. This is the seventh successive Business Monitor showing a positive net balance for turnover expectations – the most optimistic sequence of results since 2007.

Expectations for turnover in the next six months are showing an overall net balance of +21%. This is down on the +36% of the previous quarter but up on the +19% of the same quarter one year ago. Whilst 51% expect turnover to be static in the next six months, 35% expect turnover to increase against 14% who expect a decrease. Service firms are more optimistic than production firms, with service firms showing an overall net balance for turnover for the next six months at +26% compared to +14% for production firms.

In the spring Business Monitor, expectations for future export activity reached a survey record high over the sixteen and three quarter years of the Business Monitor. The latest net balance for export activity for the next sixmonths has recovered to the second highest level in the history of the survey. The net balance reached +32% - up on the +23% of last quarter and much higher than the +11% of the same quarter one year ago.

Expectations for the volume of repeat business were marginally down on the high levels of the last quarter with an overall net balance of +15% for this quarter compared to +17% for the previous quarter but up on the +12% of the same quarter one year ago.  Expectations for the volume of new business in the next six months were again optimistic but slightly down compared to last quarter with the latest net balance at +22% - down on the +32% of the previous quarter but up up on the +18% of the same quarter one year ago.

These expectation levels suggest the private sector of the Scottish economy will show vigorous growth in autumn 2014.

Donald MacRae, chief economist, Bank of Scotland said: “The surge in economic activity identified in summer 2013 has been maintained into summer and autumn this year. Expectations have fallen slightly but are at pre-recession levels, suggesting the recovery will continue throughout 2014 and into 2015. Further increases in investment by firms would enhance the recovery."

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