Consumer confidence

By Donald MacRae

Published:

GLOBALISATION can be said to have arrived when events in New York can affect business in New Deer – but can they?

Many commentators in the media seem intent on ensuring that the problems of sub-prime mortgage loans in the US are felt equally in Scotland.

But what is happening in the real economy?

The Lloyds TSB Scotland Business Monitor, now in its 10th year, shows the Scottish economy slowing, but still growing.

In the three months ending February, 2008, 36% of the firms surveyed had increased turnover and 28% reported a decrease. The overall net balance was plus 8%. This is down on the previous quarter and the same quarter one year ago, reaching the lowest level for two years.

The implication is that growth in the Scottish economy has slowed from the latest underlying annual rate of 2.1% in autumn of last year.

Although both production and service sectors are experiencing a slowdown, both continue to grow.

But if actual experience of the three months ending February shows growth slowing, expectations for the future have increased.

The percentage of firms expecting an increase in turnover in the next six months to the end of August this year is 38%, compared with 15% who expect a decrease – giving a net balance of plus 23%. For production businesses, the net balance for turnover for the next six months is plus 26%, compared with plus 21% for service businesses.

Expected levels of competition from established firms are assessed as unchanged and, despite the slowdown, there is only a slight increase in the importance attached to weakening demand.

Despite the “credit crunch”, respondents anticipate little change overall in the risk of a fall in credit availability, while the risk of increasing credit costs is assessed as unchanged overall, but slightly up by production businesses.

Likewise, there is little change overall in the assessment of risks increasing in late payment, cash-flow concerns or profit margins.

Scottish economic growth is slowing, reflecting the UK experience overall and the need for highly indebted consumers to reduce consumer spending. Consumer confidence in Scotland remains robust, as evidenced by the latest annual increase in retail sales of 7.1%.

Claimant unemployment at 2.5% is the lowest for 33

So events in New York have affected those in New Deer, but I hope not too much.

Professor Donald MacRae is chief economist at Lloyds TSB Scotland