THE contrast between the current buoyancy of the Scottish economy and firms’ worries over the future is highlighted in Royal Bank of Scotland’s latest quarterly business monitor.
Scottish companies reported a sharp acceleration in growth of overall business volumes in the survey, conducted in association with the University of Strathclyde’s Fraser of Allander Institute. And they project a further acceleration of expansion in the current quarter.
However, the survey signals a faster decline in capital investment. Royal Bank chief economist Sebastian Burnside highlighted Brexit as a key factor in the weakness of capital investment.
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Mr Burnside said: “One of the themes that has come through quite strongly is the conflict between how people view conditions today and how they expect them to materialise in future.”
He observed this gulf was much bigger than normal, and noted companies were really positive about what was happening just now but really nervous about what would happen next.
Mr Burnside said the way this gulf was manifesting itself in Scotland was through weakness of capital investment.
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He added: “That is understandable but it really does exacerbate the broader issues which the Scottish economy is going to be running up against, with unemployment down as low as it [is]. We all know how poor productivity growth has been for the UK but also for Scotland over the past few years.”
Subtracting the 25% reporting a decline from the 41% experiencing a rise, a net 16% of Scottish companies posted a rise in business volumes in the third quarter, signalling the strongest rate of increase since the fourth quarter of 2014. And a balance of 18% forecast an increase in business volumes in the current quarter. In the first and second quarters, respective balances of 1% and 7% of Scottish companies reported increases in business volumes.
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Mr Burnside said: “I think it is pretty impressive.”
The survey found that the west of Scotland continues to perform more strongly than the east. A balance of 23% of companies in the west of Scotland reported growth in the third quarter, significantly ahead of a balance of 14% in the east.
Royal Bank noted that growth in the third quarter had been strongest among finance and business services firms. A net 36% of companies in this sector reported growth in the third quarter.
A balance of 26% of companies in the transport and communications sector and a net 25% of construction firms reported growth.
Meanwhile, a balance of 11% of tourism businesses reported expansion. But businesses in this sector were among the least optimistic, with only a net 4% forecasting future growth.
A net 11% of Scottish companies reported a decline in investment, signalling the steepest fall since the second quarter of 2016. A balance of 8% of companies north of the Border project a fall in capital expenditure in the current quarter. The survey signals a stagnant picture in terms of export activity, with 22% reporting a rise and an identical percentage posting a fall.
The survey shows cost pressures for firms continue to intensify and remain high by recent standards.
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