THE worst now seems to be “firmly behind” the north-east of Scotland – in terms of the economic downturn triggered by the oil and gas sector’s woes – a key survey concludes.
Royal Bank of Scotland’s latest business monitor, in association with the University of Strathclyde’s Fraser of Allander Institute, also signals the strongest economic growth north of the Border since 2014 in the first half of next year, if companies’ expectations are realised. However, Royal Bank emphasised that, even if this were to occur, it would be “modest, not strong, growth”.
Stephen Boyle, chief economist at Royal Bank, said of the north-east of Scotland economy: “I think we have had a couple of quarters now anyway where it looks like things are stabilising and there is a sign of recovery, albeit very modest recovery, on the horizon. I think we could say the worst is behind us.”
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Asked about the growth projection for the first half of 2018 signalled by the companies surveyed, Mr Boyle replied: “[It is] the best for four years but these haven’t been a terribly good four years – so welcome but nothing to shout about.”
Referring to the oil and gas downturn, Mr Boyle said: “Since the second half of 2014, that has been a significant reason for weak growth in Scotland.”
The survey of nearly 400 Scottish businesses found growth in the three months to December was strongest in the Highlands and Islands. Businesses in the north-east signalled marginal overall growth, albeit this part of Scotland posted the weakest expansion.
Mr Boyle said: “Without trying to be unduly positive about it, these are as good a set of results as we have had for some time. They mean the economy is growing. It is going to continue to grow. It just means it won’t be growing very quickly.”
Scottish companies posted the strongest growth in export activity since early 2014 in the three months to December, and forecast a further acceleration.
Mr Boyle attributed this partly to the weak pound. Sterling tumbled in the wake of the Brexit vote last year. A weak pound boosts Scottish manufacturers’ competitiveness in overseas markets.
However, Mr Boyle also highlighted the benefits of “decent sustained growth in the eurozone for the first time in a decade”.
He flagged his view, in the context of Brexit, that this underlined the importance of negotiating a good trade deal.
Mr Boyle said: “It does highlight the importance of doing a good trade deal with the European Union. What we know is countries tend to trade with countries that are large and close to them. That is always going to be the main export market.”
Asked whether the eurozone strength meant this was not a good time to be leaving the EU, Mr Boyle replied: “Is this a good time to be leaving the European Union? I am not sure any time is a good time to be leaving the European Union, from a trade perspective.”
Of Scottish companies surveyed, 37 per cent reported a rise in business volumes for the three months to December and 27 per cent posted a decline.
The net 10 per cent reporting a rise was marginally better than the nine per cent posting an increase in the third quarter.
Overall, the manufacturing sector reported stronger growth than services. However, the financial and business services sub-sector posted above-average growth. A net 13 per cent of Scottish companies expect business volumes to rise in the next six months.
Royal Bank said: “If these expectations are realised, the first half of [next] year will see the strongest growth since late 2014 – when the falling oil price began to bite.”
A net 24 per cent of Scottish companies expect export activity to rise in the six months to June. A balance of 13 per cent posted growth of export activity for the latest three months – indicating the strongest increase since early 2014.
The monitor signalled a further fall in capital investment. Mr Boyle cited Brexit uncertainty as one possible reason.