FOUR warning cones in the past few days compell attention about the state of Scotland’s economy. It is not just experiencing an intensifying slowdown – it could find itself mired in recession by the summer.
WARNING ONE: the latest Bank of Scotland Purchasing Managers Index out yesterday shows that private sector output fell last month and the volume of new business continuing to fall.
WARNING TWO: A survey by business advisers BDO also out yesterday suggests the slowing services sector is “knocking the confidence” of Scottish firms. It finds that business optimism has hit its lowest level in more than two years.
WARNING THREE: Official figures last week showed that growth in the Scottish economy had all but stalled in the final three months of last year. It grew by just 0.2 per cent in the quarter, trailing the UK’s performance as a whole – 0.6 per cent. On a 12 month comparison, Scotland’s GDP rose by 0.9 per cent, well behind the figure for the UK – 2.1 per cent.
WARNING FOUR: The latest British Chamber of Commerce report out this week warns that the UK economy overall is set to soften further. Key indicators, such as sales and orders, as well as confidence and investment, were “at a low ebb”.
Last week an unexpectedly sharp decline in industrial production raised fears about the UK’s economy. Industrial output fell 0.5 per cent in February from a year earlier, the biggest decline since August 2013, adding to concerns that the UK economy slowed in the first three months of the year.
This followed the latest quarterly report from the Federation of Small Businesses (FSB), that a majority of smaller firms in Scotland expect business conditions to get worse. And the latest Small Business Index finds UK small business confidence at its lowest level since 2013.
The Bank of Scotland’s PMI is particularly worth noting. This index, 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 drop was led by a sharp contraction in the manufacturing sector, while the fall in new business orders is put down to the sustained downturn in the oil and gas industry.
Until now the Scottish government’s good news factory highlighted continuing growth in employment though the rate of pay rises remained subdued.
But the PMI shows staffing levels in Scotland’s private sector continued to fall in March, continuing a trend seen in every survey since December last year.
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. And services sector output has now fallen for five months in a row.
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.
Now one of the strongest arguments for more tax powers to be devolved to Holyrood was the wider appreciation it would bring of the need for strong economic growth.
Party politics at Holyrood would have to take a broader view, taking into account the overall state of the economy and its ability to generate tax revenues rather than an obsessive focus on public spending and competing spending manifestos.
But how much notice has been taken of Scotland’s current economic performance in the campaign thus far?
All too little.
Holyrood politics proceeds on a series of claims and counter claims about invalidity benefits, carers allowances, which party would do most to reverse public spending cuts – oh, and those earnestly waved tax returns: no signs of Panamanian Bearer Bonds stashed away here.
Scotland’s 2016 parliamentary election is missing the big picture – the state of the economy and its ability to deliver higher revenues.
There is a real danger of a lapse into recession – officially defined as two consecutive quarters of falling growth.
So how close are we to this?
The previous third quarter estimate for growth was revised down by Scotland’s chief statistician from plus 0.1 per cent to minus 0.1 per cent – ending a run of 11 straight quarters of growth.
We need to watch these revisions. As Douglas Fraser, BBC Scotland’s inestimable economy watcher points out, “if the same happens to the most recent figures for the last quarter of 2015, two quarters of contraction would mean Scotland has been in recession.”
And we will not know about this until the next figures are released in July – well after the Holyrood election battle.
Scotland’s politicians should be paying much more attention to these latest pointers than they have done so far. How will their policies boost growth? That is the question that really matters. Pure as snow tax returns are no substitute.