Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Monthly Economic Commentary: Slower growth approaching Global Trends The IMF downgrades global growth forecasts. The IMF is predicting moderate growth for this year; however, the recovery remains fragile and, for some economies, also uncertain and volatile. In the IMF’s latest assessment global growth for 2015 has been downgraded to 3.1% in 2015 and 3.6% in 2016 (down from 3.3% and 3.8% respectively), primarily due to slower growth in emerging markets offsetting improved performance in advance economies. IMF GDP Growth Forecast (%) Global United States Euro Area China Japan United Kingdom 2015 3.1 2.6 1.5 6.8 0.6 2.5 2016 3.6 2.8 1.6 6.3 1.0 2.2 Source: IMF World Economic Outlook, October 2015 In the US, the world’s largest economy, GDP growth for Q2 2015 was revised upwards to 3.9% (annualised rate). The upward revision was mainly driven by stronger consumer spending and increased business investment in commercial and residential construction. The Federal Reserve has said the US economy remains ‘on track’ for an interest rate rise this year. The US central bank kept interest rates on hold in September due to concerns over global economic growth. Interest rates have been close to zero since December 2008. Many analysts expected a rate rise in September; however, it is now expected that this will take place in December. More recent US business surveys indicate continued growth but at a slower pace. Manufacturing growth slowed to its lowest level in more than two years in September, as weaker overseas demand and a strong dollar continued to put pressure on the sector. The service sector performed better but also slowed to a more moderate pace of growth. US labour market data indicate slower job creation, with employment increasing by a modest 142,000 jobs in September (compared to an average of 230,000 per month over the previous year). The number of jobs created in July and August was also revised down. The US unemployment rate, however, remains at 5.1%. October 2015 Recent eurozone business survey data suggests continued improvement in September. There were solid gains in both output and new orders; however the pace of expansion weakened to a four month low. Both the manufacturing and service sectors saw an expansion of activity, with services slightly outpacing manufacturing. Looking across the zone, growth decelerated, but remained relatively solid in Germany, Spain and Italy, with France accelerating to a three month high. The eurozone is Scotland’s main overseas trading partner, so increased economic growth should help to boost demand for Scottish goods and services. However, this may be offset by the stronger pound which will make Scottish exports to the eurozone more expensive. The unemployment rate across the zone remained unchanged for August at 11%. Inflation in the eurozone was -0.1% in September. The negative rate was mainly due to lower energy prices and was the first time the rate had turned negative in six months. The European Central Bank had previously warned that inflation could turn negative again this year. It now expects inflation to be 0.1% for 2015 as a whole, rising to 1.5% in 2016. Growth in China, the world’s second largest economy, slowed to 6.9% (y/y) in Q3 2015. This is the weakest rate since the global financial crisis and below the government’s target of 7%. Business survey data for September indicate that the slowdown may be intensifying, with the manufacturing sector contracting for the second consecutive month. New orders fell at their quickest rate in over three years, driven by a sharp fall in new export orders. UK Trends UK inflation returns to negative territory. The Consumer Price Index (CPI) fell to -0.1% in September; the UK inflation rate has been at or around 0% for most of 2015. The negative rate was mainly due to falling motor fuel prices and a smaller than usual increase in clothing prices. The Bank of England expects inflation to bounce back towards its target of 2% next year. The Bank kept UK interest rates on hold at 0.5%. Business surveys suggest UK service sector is losing momentum, as growth slowed to its lowest rate in nearly two-and-a-half years. Despite a slowdown in business activity and new order growth, there was a strong rise in service sector employment. Firms reported that global economic uncertainty is causing some clients to delay new orders, and weakness in the manufacturing Monthly Economic Commentary: Slower growth approaching sector is also having an affect on business activity, particularly for industrialrelated services. UK manufacturing performance remains lacklustre, with activity falling to a three month low in September. New order growth slipped to its weakest pace in a year. Manufacturers also recorded job losses for the first time since April 2013. New export orders increased marginally, but overall the domestic market remains the main contributor to growth. UK construction output accelerated to a seven month high. Survey data for September signalled an overall expansion of business activity, with increases in output and employment. The volume of new work also rose, but the pace eased from June’s peak. Across the sector, house building remained the fastest growing area, hitting a one-year high; commercial development also rose sharply. In the labour market, UK unemployment fell to a seven year low. In the three months to August, UK unemployment decreased by 79,000 on the previous quarter, to reach 1.77 million. The ILO unemployment rate now stands at 5.4%, the lowest rate since Q2 2008. Employment stood at 31.1 million, an increase of 140,000 on the previous quarter. The employment rate is at a record high of 73.6%. Scottish Trends The Scottish economy grew by 0.1% in Q2 2015 (compared to growth of 0.7% in the UK). On an annual basis, comparing the latest quarter with the same quarter in the previous year, Scottish GDP growth was 1.9% (the UK grew by +2.4%). Over the quarter, service sector GDP (which accounts for 75% of the economy) was flat; production GDP fell by 0.8%, and within this manufacturing contracted by 1.1%. However, construction grew by 3.5%, driven by continued strong investment and support from public spending in Scotland. The latest Bank of Scotland Business Monitor suggests that the Scottish economy continues to recover from the slowdown at the start of 2015. In the three months to August 2015, 36% of businesses reported an increase in turnover, 36% reported no change and 28% reported a decrease. The net balance of +8%, was marginally up on the +7% reported in the previous quarter. Figures for service sector firms were better than for production, with a net October 2015 balance of +12% reporting turnover growth in services, compared to only +3% for production. There was an improvement in the volume of repeat and new business; however, export activity declined for the second consecutive quarter. Business expectations remain positive, with a return to moderate growth expected in the third quarter. However, export expectations for the next six months have fallen for the second consecutive quarter, driven by a rise in uncertainty due to a slowing world economy and the rising value of Sterling. The more recent Bank of Scotland PMI business survey indicates that private sector output declined for the first time in six months in September. Overall, the volume of new orders fell marginally and new export orders declined for the eighth consecutive month. Sector data showed that the decline was broad-based with falling output in both manufacturing and services. Manufacturing firms reported a fall in new orders from both domestic and overseas markets. Despite this, there was modest expansion in employment levels across both areas. Scottish international manufactured exports fell in the second quarter of 2015. The Scottish Index of Manufactured Exports showed that the volume of manufactured overseas sales decreased by 2.3% (real terms) in Q2 2015. Volumes are now around 0.9% below their pre-recession peak in 2007 but almost 20% above their trough in 2009. Over the quarter the largest contributors to the decline were from Food and Drink (-3.9%) and Engineering & Allied Industries (-4.4%) – these sectors together account for more than half of international manufactured exports from Scotland. The decline in Food and Drink was driven by a sharp fall in Drink exports, down 5.7% following strong growth in the previous quarter. Food exports increased by 3.9%. On an annual basis (comparing the most recent four quarters to the previous four) the volume of manufactured exports to overseas markets grew by 3.2% (around the same as the UK at 3.1%). Scottish unemployment rose by 18,000 in the three months to August 2015 to reach 170,000, in contrast to the UK as a whole where unemployment fell to a seven-year low. The Scottish ILO unemployment rate now stands at 6.1% (compared to 5.4% for the UK as a whole). The total number of people in employment is 2.61 million, a decrease of 6,000 over the previous quarter. The Scottish employment rate is 73.7%, marginally higher than the UK rate of 73.6%. October 2015 Monthly Economic Commentary: Slower growth approaching Performance of SE Account Managed Companies Scottish Enterprise regularly seeks feedback from Account Managed (AM) companies on performance and expectations in relation to turnover, profitability, employment and exports. Over the period July to September 2015, over 500 companies were surveyed. Performance & Expectations July to Sept 2015 (% of firms reporting an increase) 80% 70% 60% 50% A majority of companies (62%) reported increased turnover over the six months prior to survey, with 21% reporting a decline (a net balance of 41%). A lower proportion (around 50%) reported increased profitability and employment; this suggests that some companies are experiencing pressure on profit margins and are able to increase turnover using existing staffing levels, so increasing productivity. Around 70% of the companies surveyed were international exporters, and of these around half reported increased overseas sales. 40% 30% 20% 10% 0% Turnover There has been a decrease in the net proportion of companies reporting higher turnover in the July to September 2015 quarter (+42%) compared to the same quarter a year ago (+48%). Looking ahead, the majority (75%) expect turnover to grow over the coming six months with a similar proportion (71%) expecting profitability to increase. Exporting companies are generally optimistic about their future export sales with 75% anticipating an increase. These figures overall seem to suggest a different performance for AM companies than for Scottish businesses overall. Profitability Last Six Months 80% Employment Exports Next Six Months Turnover Performance (% of firms responding) 64% 62% 60% 40% 20% 0% -20% -16% -21% Jul - Sept 2014 (base: 466) Jul - Sept 2015 (base: 493) -40% Increase Decrease Monthly Economic Commentary: Slower growth approaching Implications for Scottish Enterprise The latest data suggest that growth in the Scottish economy is slowing. In particular, expectations for future export performance have fallen, continuing a trend that has been building for a while now. The outlook is positive in the US and the eurozone economies, Scotland’s main overseas trading partners, which should help boost demand for products Scotland exports. However, exports to the eurozone in particular are being hampered by the appreciation of sterling against the euro, making Scottish exports more expensive. Ongoing trading conditions are likely to remain challenging for Scottish exporters, particularly for manufacturing firms, making it difficult for them to break into new markets or become first time exporters. Overall this suggests a continuation of the importance of selling to the rest of the UK and a requirement for robust growth at the UK level. Improving competitiveness, particularly through increased productivity levels, will be a key factor for Scottish firms to compete at home and overseas; this could be helped by increasing innovation, investment and developing higher skills across the workforce. Strategy & Sectors October 2015 _______________________________________________________ This commentary reflects our understanding of issues at the time of writing and should not be taken as Scottish Enterprise policy. If you have any comments or suggestions for improvement, please email Joanne Liddle ([email protected]) or phone 0141 228 2242. October 2015