An industry survey shows that Scottish business remain optimistic in the face of a fragile economy. This analysis was carried out by the Scottish Chambers of Commerce’s Quarterly Economic Indicator. According to the study, optimism continued to improve during the third quarter of 2017.
The survey was conducted between August 21 and September 14 2017 to which 384 firms responded.
Optimism was higher year on year in certain industries, such as construction, financial and business services, manufacturing and tourism.
The survey, which is a collaboration with the Fraser of Allander Institute, shows that Scottish businesses remain resilient in the face of uncertainty. The study also shows a fragile Scottish economy that continues to grow at below trend levels.
Professor Graeme Roy, of the Institute, however, warned record high employment levels are also causing recruitment difficulties, dampened growth and increased costs.
In a foreword to the report, he said: In such uncertain times, it is even more important that businesses focus on the long-term drivers of growth that they can control - including innovation, investing in productivity improvements, and developing the skills of their workforce.
The weak pound’s effect on foreign holidays lead to tourism being a leading performer over the third quarter of 2017. Meanwhile, retail and wholesale sector continued to decline, which caused alarm in the field. Sales revenue and cash flow continued to decline along with employment trends. Profitability and capacity also declined.
Despite an increase in customer numbers, SCC’s quarterly economic indicator suggested tourism sales revenue fell across the board for the second consecutive quarter. Not only sales revenue fell across the board for the second consecutive quarter, but also investment and employment declined over the quarter.
Therefore, it’s important to have a strong performance in the fourth quarter pre-Christmas period.
The construction sector also gave a poor performance, with optimism falling to its lowest level since the third quarter of 2014. However, in spite of the information gathered by the survey, a quarter of the construction firms who responded said they were hiring staff, although they continued to face recruitment difficulties.
Domestic orders and sales revenues were flat, while firms said their performance had been improved by strong export sales. The manufacturing sector, alternatively, reported booming optimism after a mixed year in 2016.
Anderson Strathern director Neil Amner, also chairman of the Scottish Chambers of Commerce Economic Advisory Group, said: The results in our third quarterly economic indicator of 2017 point to a broadly positive picture for Scottish business.
However, the retail sector in particular continues to show decreasing sales, in addition to cashflow and profitability challenges.
This continues on from our findings in the second quarter which highlighted persistent issues in the retail sector. Levels of inflation have continued to impact on real terms wage growth, which has maintained pressure on household budgets and translated into recurrent challenges for this sector.
The report found broad optimism across Scottish business, especially in the financial and business services sector which displayed strong, positive results. Accordingly, sales and profitability were at their highest levels for several years.
Therefore, the survey is very optimistic, with third quarter optimism levels higher than figures recorded across Q3 2015 and Q3 2016.
Mr Amner added: For many of our industries, recruitment difficulties continue to sit above the long term trend levels, exacerbated by the record high employment figures.
Concerns continue to be raised by our members when it comes to seasonal workers and the attractiveness of the UK to EEA migrants during the uncertainty surrounding the Brexit negotiation process.
Furthermore, members in more traditional industries have highlighted issues in attracting younger workers.
Businesses in sectors such as manufacturing must do more to re-imagine their workplaces to attract future talent, by focusing on increasing autonomy and flexibility in their working practices.
He said that the political situation with Brexit, a general election and moves for a second Scottish independence referendum were creating uncertainty.
He added: "As we approach a general election, we expect the political parties to pledge targeted tax cuts, potentially including a temporary cut in VAT, in order to bolster consumer demand."
Scottish Chambers of Commerce (SCC) found profitability and cash flow continued to be challenging and pressure on prices was high.