The Scottish economy is showing a turnaround in performance with acceleration into growth in the summer months, according to the latest Business Monitor from Bank of Scotland.
Expectations are high for this surge in growth to continue for the next six months.
In the three months ending August 2013, 45% of firms surveyed increased turnover, a third (33%) experienced static turnover, and 22% experienced a decrease. This gave a net balance of +23%; a substantial improvement from the -8% of the previous quarter and the -3% of the same quarter one year ago. This is the best result in six years and returns the net balance figure to pre-recession levels of 2007.
The overall net balance of turnover for firms in the production sector in the three months to end August this year was +24%. This is in stark contrast to the -5% of the previous quarter and the -2% of the same quarter one year ago.
Service businesses are showing a similar improvement in performance. The overall net balance for turnover for the three months ending August was +22%, significantly better than the -10% of the previous quarter and the -6% of the same quarter one year ago.
Volumes of repeat business rose strongly with a net balance of +10% this quarter compared to -7% in the previous quarter and the -8% of the same quarter one year ago. Trends in the volume of new business were even stronger with an overall net balance of +20% compared to +6% of the previous quarter and the -5% of the same quarter one year ago – an encouraging sign for future growth.
Export activity had plunged at the end of 2011 but a recovery set in at the beginning of 2012. The recovery halted during summer 2012 but deteriorated in autumn that year. The overall net balance for export activity in the latest three months was -1% – a deterioration from the +12% of the previous quarter but similar to the 0% of the same quarter one year ago. This is the only negative trend in this latest Business Monitor.
Firms’ assessment of their immediate prospects in the next six months swung upwards and downwards last year and in the first quarter of this year. These latest results show another improvement in expectations for turnover giving three consecutive quarters of a positive net balance of rising expectations.
Expectations for turnover in the next six months are showing an overall net balance of +19%. This is an improvement on the +13% of the previous quarter and the -7% of the same quarter one year ago. Whilst just over half (53%) expect turnover to be static in the next six months, a third expect turnover to increase against 14% who expect a decrease. Production firms are slightly more optimistic than service firms, with production firms showing an overall net balance for turnover for the next six months at +21% compared to +18% for services firms.
Expectations for future export activity have fallen since the previous quarter. The latest net balance for export activity for the next six months is +11% – a move downwards from the +19% of the previous quarter but much better than the -3% of the same quarter one year ago.
Expectations for the volume of repeat business were up with an overall net balance of +12% for this quarter compared to +4% for the previous quarter and the -5% of the same quarter one year ago. Expectations for the volume of new business are showing another improvement with the latest net balance at +18% – up on the +14% of the previous quarter and the -5% of the same quarter one year ago.
These expectation levels suggest the private sector of the Scottish economy will grow in the second half of the year.
Donald MacRae (pictured), chief economist, Bank of Scotland said: “The tentative rise in confidence identified in the previous Business Monitor has been realised with achievement in summer this year of the best quarter’s results since 2007.
“The summer months have seen a surge in economic activity to pre-recession levels accompanied by rising business expectations for the remainder of the year. If it continues through to December the Scottish economy should record a year of growth in 2013. Consolidation of the recovery would be enhanced by firms increasing investment.”