The Monitor, for the three months ending 31 May 2010, shows 33% of firms surveyed reporting an increase in turnover, 27% reporting static turnover and 40% reporting a decrease, giving a net balance of -7%; a significant improvement from the previous quarter's figure of -22% and from the -21% of the same quarter last year. This is the strongest result recorded in the last two years of the Business Monitor.
After four consecutive quarters of improvement, the Business Monitor showed a deterioration in spring of this year as a direct result of the severe winter weather of early 2010. This latest survey shows the Scottish economy has resumed a tentative exit from recession with five of the last six quarters showing an improvement in firms' turnover.
The production sector is showing a significant improvement with an overall net balance for turnover of -2%, up from -31% in the previous quarter and up from the -26% of the same quarter one year ago.
Service businesses also improved with a net balance of -10% compared to -17% in the previous quarter and to -19% of the same quarter in the previous year.
Expectations of increasing turnover in the next six months remain low, with production businesses reporting a net figure of +4% and service businesses -3%.
There has been a leap in export activity with a net balance of +13% of all businesses surveyed reporting an increase in exports. This increase from +3% in the previous quarter marks a return to pre-recession levels and is the best result for three years.
Cost pressures have re-emerged with a vengeance. The overall net balance of firms experiencing cost increases is +46%, up from +33% in the previous quarter and from +27% in the same quarter one year ago. Expectations of cost increases are also rising with a net balance of +43% anticipating rising costs.
Despite the experience of the last quarter of declining turnover, all firms rated the importance of weakening demand as declining. This provides further evidence that the experience of the last quarter was weather induced and will not persist throughout 2010. Assessed demand has improved over the last year. This is consistent with the positive expectations for the next six months but also indicates a weak rather than a vigorous recovery.
Professor Donald MacRae, chief economist, Lloyds Banking Group Scotland said: "After five quarters of declining output with the most severe decline in quarter one of 2009, the Scottish economy returned to growth at the end of last year with output growth of 0.2%. The recovery stalled in mid winter but has now resumed. However, confidence remains low with the service sector feeling the effects of low consumer confidence. Nevertheless, the Scottish economy should grow between 0.5% and 1.0% during 2010."
