Private-sector growth fall

Greece and China raise concerns for Scotland’s overseas markets

GROWTH in Scotland’s private sector economy has slowed down, and business confidence has fallen as Greece and China fuel concerns about overseas markets, according to two surveys out today.

The Bank of Scotland PMI index, which measures the change in combined manufacturing and services output, signalled continuing growth for the overall private economy in June, extending its 50-plus run to three months.

But its reading of 51.2 was down from the 51.9 in May, and manufacturing again declined, with a fifth consecutive monthly fall in export orders. Meanwhile the BDO optimism index has dropped to its lowest level since November last year, though still in positive 100-plus territory at 103.9.

The employment index moreover has suffered its sharpest drop since November 2011, suggesting there could be a threat to job creation in Scotland, though for now hiring intentions remain relatively strong.

Advisers BDO said that the latest findings reflected firms’ concerns that the Greek crisis, and a potential slowdown in China’s economy sparked by a plunging stock market, could affect their own prospects.

Falling confidence was driven by pressures in the manufacturing sector, with the manufacturing index plummeting to 98.5 (from 103.4).

“It is now below the long-term trend rate for the first time in two years, showing that little progress has been made in rebalancing the economy away from the service sector, and demonstrating how global uncertainty could hamper the exports market,” BDO said.

The output index dipped for the first time this year, down to 104.1, with firms no longer able to rely on falling prices as input deflation tailed off – the inflation index moved upwards to 94.6.

Martin Gill, head of BDO in Scotland, said: “We thrive by being an outward looking economy, so to see the dynamo that is the Chinese market slowing down is clearly playing on the minds of exporters.”

Mr Gill added: “The Chancellor missed an opportunity to help exporters, and specifically those manufacturers that drive foreign trade, in last week’s Budget. The Government must cut the tax barriers that exporters face as a priority.”

The Bank of Scotland monthly economic survey found the service sector was again the driver of expansion, recording an increase in activity in line with higher levels of incoming new business.

In contrast, manufacturers reported marginal falls in both output and new orders. Weakness in the oil and gas sector, plus unfavourable exchange rates, weighed on total demand, both domestic and foreign, during the month.

Manufacturers also registered a slight fall in job numbers, reflecting excess capacity in the sector.

On the price front, average input prices increased at a marked pace but only in the service sector, reported to be the result of higher salary costs.

Donald MacRae, chief economist at Bank of Scotland, said: “June was another month of growth continuing the pickup in activity starting in April. But the growth appears confined to the services sector. In contrast manufacturing showed declining output, employment and new orders.

“New export orders showed a fifth consecutive monthly fall, illustrating the challenge of exporting with a strong pound sterling.

“The Scottish economy continues to make a moderate recovery from the slowdown of the first quarter.”