Scottish economy contracts amid oil and gas slowdown

● Private sector slides in November, while manufacturing shows sharpest downturn in more than three years

The downturn in the oil and gas industry saw Scotland’s economy contract in November for the second time in three months, a new report out today said.

The latest decline in business activity was driven by manufacturing, where the rate of contraction was the sharpest in just over three years, according to the latest Bank of Scotland/ Markit monthly purchasing managers index (PMI).

Today’s report said the manufacturing contraction was “strong”, with well over one in four companies registering a lower volume of output last month.

“Survey participants mentioned that the latest drop in production partly reflected the downturn in the oil and gas sector,” it said.

The survey also indicated a fall in incoming new orders for private sector companies for the second time in three months, also exacerbated by the slowdown in the energy industry.

At 49.8, the headline Bank of Scotland PMI, which covers both the manufacturing and services sectors, showed a slight contraction in business activity.

Any figure below 50 denotes contraction, and the figure for November comes only after sluggish Scottish private sector expansion in October, when the index came in at 50.9.

Alasdair Gardner, Bank of Scotland regional managing director for Scotland, said: “The headline index fell below the crucial 50 mark in November as a slowdown in the oil and gas industry veered the Scottish economy into contraction.

“The drop in activity stemmed from declining new orders, which was affected by unfavourable exchange rates. However, this did not discourage firms from further adding to staffing numbers.”

The chronic fall in energy prices has seen a stream of oil and gas explorers, major and small independents, rein in or abandon projects, particularly in the North Sea, involving thousands of global job losses.

Economists said there seems little break in the clouds around the industry, with oil prices falling last Friday to under $39 a barrel, a seven-year low.

Meanwhile, today’s survey said firms operating in Scotland’s private sector had continued to reduce output prices despite a further rise in average costs.

By contrast, services providers – a sector ranging from pubs and restaurants to transport, IT and accountancy – reported a slight rise in business activity in November, with members linking the performance to an increased focus on marketing campaigns.

Overall subdued jobs growth was reported by private services employers amid falling backlogs of work. Manufacturing shed workers last month at the “sharpest rate since January”, even though the job cuts were “modest overall”.

It adds: “Anecdotal evidence suggested that a fall in employee numbers was associated with a lack of demand for new orders.” The report is compiled from replies by about 600 company purchasing executives in Scotland.