Manufacturing hit by plunge in orders
Key PMI output index plunges amid sharp deterioration in conditions
A “SUSTAINED downturn” in the oil and gas industry has been blamed for a sharp fall in Scotland’s manufacturing output.
Scottish manufacturing contracted at its fastest rate in more than five years last month, according to figures from the Bank of Scotland.
Manufacturers blamed the drop in production on a lack of new orders received throughout the month.
SCOTTISH manufacturing contracted at its fastest rate in over five years last month, as the downturn in Scotland’s private sector economy deepened.
The seasonally adjusted manufacturing output index, part of Bank of Scotland’s authoritative monthly purchasing managers index (PMI) report, crashed from 49 to 44.6, having topped the important no-change 50 mark as recently as last October.
The PMI report found a sharper deterioration in overall business conditions in Scotland’s private sector last month, with the headline economic index number falling from 49.2 in February to 48.5 in March. The UK-wide figure rose from 52.7 to 53.6.
“Output declined and staffing levels continued to decrease, while the volume of incoming new business fell for the second successive month, driven by the sustained downturn in the oil and gas industry,” Bank of Scotland said.
Manufacturers blamed the drop in production on a lack of new orders received throughout the month, while employee numbers in Scotland’s goods-producing sectors fell marginally, but for the fifth time in six months. “Anecdotal evidence linked the fall in staffing levels to efforts to cutbacks in production costs,” the report said.
New export orders remained below the 50 threshold for the 14th successive month. “However, the rate of decline softened to the weakest in eight months and was modest overall,” it added.
While some firms blamed the downturn on the oil industry, others commented on a general deterioration of conditions in the sector.
Business activity in the service sector fell for the second successive month.
However, the rate of contraction was marginal and softened since February. Output declined and staffing levels continued to decrease, while the volume of incoming new business fell for the second successive month, driven by the sustained downturn in the oil and gas industry.
Faced with fewer new projects, firms worked further through their backlogs of work.
Meanwhile, companies lowered their output charges, citing a lack of demand and competitive pressures in the economy, yet faced a further rise in input costs.
Alasdair Gardner, Bank of Scotland’s regional commercial banking director, said: “Scotland’s private sector experienced harsher business conditions during March, as the current downturn intensified.
“Moreover, the struggles endured in the economy’s oil and gas industry continued to take its toll on output and new order levels, which both contracted. As a result, job shedding is evident for the fourth successive month as firms looked to cut back on production costs.”
Meanwhile growth in the UK economy continued to soften in the first three months of 2016, according to the British Chambers of Commerce (BCC) quar terly economic survey which samples more than 8,500 firms.
Several key indicators for the services sector fell slightly, with domestic sales and orders reaching their lowest level for over three years. For manufacturing, domestic sales fell again, and remain low in historic terms.
While some manufacturing sector indicators showed slight improvements, the increases are from a very low base. The BCC says the figures suggest “potential downside risks for economic growth ahead”.
The report warns that confidence in turnover and profitability for both services and manufacturing remain low by historical standards
David Kern, BCC’s chief economist, said: “The improvement in the manufacturing export balances, probably helped by sharp falls in sterling, is welcome. But exports are still weak by historical standards.
“Our current account deficit has escalated to a record high in 2015 and is likely to remain unacceptably large in the next few years. Britain’s credit rating will be at risk, unless we make improving our trade balance and boosting our exports national priorities.”
He added: “Our labour market and the services sector remain dynamic, and Britain is still likely to grow faster than most other G7 economies in the next two to three years.”