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Economic commentary

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Economic commentary

Our bi-monthly update on global, UK and Scottish economic trends and performance, drawn from a wide range of economic indicators and commentaries. Published June 2019.

Trade uncertainty dragging down global growth, Scottish outlook weakens

Forecasts have been revised downwards in almost all major economies, while growth in the eurozone rebounded to 0.4% in Q1 2019. The eurozone is Scotland’s largest export market so any pickup is welcome news for Scottish exporters.

Main factors contributing to the slowdown 
  • Rising trade barriers
  • Sluggish investment in emerging and developing economies
  • Erosion of business and consumer confidence 

Global economic trends

  • Global economic growth is stabilising at a lower rate
  • The OECD forecasts global GDP to grow by 3.2% in 2019 and by 3.4% in 2020
  • Growth in the US, the world’s largest economy, is expected to slow

Growth forecasts (%)

 

OECD

World Bank

 

2019

2020

2019

2020

World

3.2

3.4

2.6

2.7

United States

2.8

2.3

2.5

1.7

Euro area

1.2

1.4

1.2

1.4

China

6.2

6.0

6.2

6.1

Japan

0.7

0.6

0.8

0.7

United Kingdom

1.2

1.0

N/A

N/A

 

Table 1 showing global economic growth forecasts. Sources: OECD Economic Outlook, May 2019World Bank Economic Prospects, June 2019

UK economic trends

  • Growth in the UK in the first quarter of 2019 was 0.5%
  • PMI business surveys collectively indicate that the UK economy remained close to stagnation in May
  • Employment increased to a record high in the three months to April

Scottish economic trends

  • The outlook for the Scottish economy remains subdued in the near term
  • Private sector output in Scotland fell for the fifth time in six months in May
  • The value of Scottish exports increased by 12.9% in the year to Q1 2019 
  • Exports from Scotland grew faster than any other part of the UK

What our customers tell us

We regularly seek feedback on current performance and expectations from our account managed companies.

Feedback was received from approximately 150 companies between 1 March and 31 May 2019.

A majority reported increases in turnover, profitability and employment performance over the last six months. A greater proportion of companies also expect strong performance over the next six months.

 

Figure 1 showing company performance over the last six months (% of companies)

 

AM Company Expectations for Next 6 Months (% of companies, March to May 2019)

Figure 2 showing company performance over the next six months (% of companies)

However, there has been a notable deterioration in export performance in recent months, which could be due to European customers delaying committing to new orders or moving supply chains away from the UK as the original Brexit date approached.

What all this means for Scottish Enterprise and Scottish businesses

While several major economies outperformed expectations in the first quarter of 2019, forecasts of a slowdown in global growth are widespread. Trading conditions are likely to become less favourable for Scottish businesses operating in some overseas markets. Slower growth in these markets may impact negatively on Scottish exporters and potential inward investment.

Growth in the UK domestic economy is subdued, and Scottish businesses face a period of prolonged uncertainty as the UK continues to navigate its departure from the EU. However, the labour market remains solid and although business surveys have been mixed there is evidence Scottish businesses have been relatively resilient to date.

In this more challenging environment, Scottish businesses will need to take advantage of all opportunities to expand both at home and overseas. Key to achieving this will be consistent improvements in competitiveness, particularly by increasing productivity levels through innovation and investment. Gains in productivity will also be needed to navigate increasing wage costs as recruitment difficulties intensify, with unemployment close to a record low.

Disclaimer

We release Scotland's economic commentary bi-monthly. This commentary reflects our understanding of issues at the time of writing drawn from a wide range of credible and respected sources and should not be taken as Scottish Enterprise policy.

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