Scotland’s economy: eight successive months of growth

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By Russell Bruce

Just released, the latest Purchasing Manager’s Report (PMI) from the Bank of Scotland shows continuing strength in Scotland’s economy despite less optimistic trends reported in many PMI reports for economies around the world.

Monthly PMI reports are widely regarded as important indicators of economic trends. Data reported from contributing businesses is computed and expressed as a number above or below 50. Over 50 is an indication of growth, below 50 indicates the economy is contracting.

Manufacturing output in August accelerated at the sharpest rate for four months reaching 54.3 and manufacturing firms reported new orders increasing for the eighth consecutive month.

A slight weakening in the Scottish service sector saw growth slip slightly from July to 52.2 producing a solid 52.7 for Scottish output on the composite indicator placing it comfortably above the all UK figure of 50.6

There was a strong rise in new export orders extending the current sequence of growth to ten months.

The service sector held on to growth for the second month from its negative position in June to bring the Scottish composite new orders index to 51.3 just slightly behind the all UK figure of 52.

The Scottish Service sector also did better in the level of work in hand to deliver an all Scotland figure of 51 against an all UK figure of 46.4. This is the worst all UK figure for work in hand this year.

The composite employment figure for manufacturing at 51.3 shows manufacturing continuing to recruit but was offset by staff reductions in the service sector giving a composite figure of 49.4 for Scotland. For the second successive month, employment across the UK as whole decreased with the index now standing at 48.9.

Commenting on the report Donald MacRae, Chief Economist at Bank of Scotland, said:

“With an eighth consecutive month of growth, this is an encouraging PMI. Growth remained solid bringing the PMI Output Index second only to London within the UK. This is a welcome result, suggesting the private sector of the Scottish economy grew, albeit slowly, throughout January to August this year.

“Manufacturing output accelerated at the sharpest rate for four months, while new orders received by manufacturing firms increased for the eighth consecutive month. There was a particularly welcome rise in new export orders which extended the current sequence of growth to ten months.

“Although the services sector saw growth, it was the weakest monthly rise in activity since January. The rate of expansion in services has slowed over the summer, with employment falling for the third month in a row. Nevertheless, the Scottish economy is displaying resilience in the face of a global slowdown so far.”

In the face of global trends it is a particularly good result and I must admit the trend is stronger than I thought it might be this month. The Scottish Government can reasonably claim some credit for the use of its limited economic powers and identifying growth areas of potential.

But credit where credit is due. Continuing economic growth in Scotland is the product of our private sector, especially manufacturing which has been adept at exploiting market opportunities. A feature of small economies is that they can respond faster to changing times and a dynamic business sector will find opportunities where others see only problems.