Scotland business

Downturn in Scottish economy 'intensifying'

Image caption One survey suggested that a drop in output by the private sector was led by a sharp contraction in the manufacturing sector

Two separate business surveys have suggested the recent downturn in the Scottish economy may be intensifying.

The Bank of Scotland's latest PMI indicated output in the private sector declined last month, while the amount of new business continued to fall.

Purchasing managers reported "harsher business conditions" in March.

Meanwhile, a survey by business advisers BDO suggested the slowing services sector was "knocking the confidence" of Scottish firms.

It indicated that business optimism had hit its lowest level in more than two years.

The reports follow official figures released last week that showed growth in the Scottish economy all but stalled in the last quarter of 2015.

The Bank of Scotland's PMI, which measures changes in manufacturing and services output, posted 48.5 in March, falling from February's 49.2.

Any figure below 50 suggests economic contraction.

The survey suggested the drop was led by a sharp contraction in the manufacturing sector, while a decline in business activity at service providers was more muted.

It attributed the fall in new business orders to the sustained downturn in the oil and gas industry.

Image copyright Thinkstock
Image caption The survey linked a slowdown in the oil and gas industry to a fall in incoming new orders for firms

Staffing levels in Scotland's private sector continued to fall in March, continuing a trend seen in every survey since December last year. However, the rate of job shedding remained slight.

The findings contrast with a survey of about 100 employment consultants by Markit data consultancy, which suggested that recruitment picked up in Scotland last month.

Bank of Scotland regional managing director for Scotland Alasdair Gardner: "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."

BDO's latest Business Trends Report also painted a gloomy picture, suggesting that the slowing services industry was "taking its toll" on the Scottish economy.

Its Output Index - which covers orders for the coming three months - dropped from 101.7 in February to 101.3 in March.

Meanwhile, BDO's Optimism Index - which predicts growth six months ahead - fell to 99.4, its lowest level in more than two years.

According to the report, services sector output has now fallen for five months in a row.

'Mood of insecurity'

BDO said the picture looked worse for manufacturing, with lower optimism "giving a strong indication" that firms' order books will decline sharply in the next six months if nothing changes.

Martin Gill, head of BDO in Scotland, said: "These figures show that political and economic uncertainty is affecting optimism among Scotland's businesses.

"The EU referendum, the continued difficulties faced by the oil and gas sector, and the economic difficulties being faced in the eurozone and China are all contributing to a mood of insecurity which is hitting investment and growth plans."

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