The latest Business Monitor from Bank of Scotland shows the Scottish economy growing at pre-recession levels, although the pace of recovery has eased since spring and summer. Expectations for the next six months remain elevated at levels comparable to 2007 and are at their fourth equal highest in seven years.
In the three months ending November 2014, 41% of firms surveyed increased turnover, 34% experienced static turnover, and 25% experienced a decrease. This gave a net balance of +16%, down from the +30% of the previous quarter but marginally up on the +15% of the same quarter one year ago. This is the fifth best result in seven years and provides further evidence of the embedding of the recovery. The net balance for turnover has now been positive and therefore indicating growth for six consecutive quarters.
The overall net balance of turnover for firms in the production sector in the three months to end November 2014 was +12%. This is down on the +35% of the previous quarter but is identical to the +12% of the same quarter one year ago.
Service businesses showed an overall net balance for turnover for the three months ending November of +19%, down on the +27% of the previous quarter and up on the +17% of the same quarter one year ago. Growth has been maintained over the year but the rate of increase has eased.
Volumes of repeat business remained at high levels in this latest quarter, with a net balance of +15%, which is identical to the +15% of the previous quarter and is higher than the +10% of the same quarter one year ago. Trends in the volume of new business have eased in the latest three months with an overall net balance of +18% compared to +23% of the previous quarter, but are up on the +13% of the same quarter one year ago.
A recovery in export activity was evident in the previous three Business Monitors. This has come to a halt with the overall net balance for export activity at -4% which is well down on the +13% of the previous quarter but superior to the -14% of the same quarter one year ago. Exporting is proving a challenge in the face of stagnant Eurozone economies.
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. These gains have been partially reversed in the latest quarter but still show expectations close to the high levels evident pre-recession. This is the eighth successive Business Monitor showing a positive net balance for turnover expectations – the most optimistic sequence of results in seven years.
Expectations for turnover in the next six months ending May 2015 are showing an overall net balance of +19%. This is marginally down on the +21% of the previous quarter but up on the +16% of the same quarter one year ago. Whilst 51% expect turnover to be static in the next six months, 34% expect turnover to increase against 15% 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 +24% compared to +11% for production firms.
In the summer Business Monitor, expectations for future export activity reached the second highest level in the sixteen and three quarter years of the Business Monitor. The latest net balance for export activity for the next sixmonths has plunged downwards. The net balance reached +5% - well down on the +32% of last quarter and the +21% of the same quarter one year ago. An increase in uncertainty and a slowing world economy have taken their toll of firms’ assessment of export prospects.
Expectations for the volume of repeat business were marginally down on the high levels of the last quarter with an overall net balance of +13% for this quarter compared to +15% for the previous quarter, but up on the +10% 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 +19% - down on the +22% of the previous quarter but up on the +17% of the same quarter one year ago.
These expectation levels suggest the private sector of the Scottish economy will show trend level growth in the first half of 2015.
Donald MacRae, chief economist, Bank of Scotland said: “The surge in economic activity identified in summer 2013 has been maintained throughout 2014. Expectations have fallen slightly but are close to pre-recession levels, suggesting the recovery will continue into 2015 but the rate of growth will ease. Further increases in investment by firms would enhance and embed the recovery."