The Scottish Economy Industrial Performance the CBI survey. Responses are elicited not only from manufacturing but also construction, distribution and financial institutions. The results from the new SBS are therefore capable of a greater degree of disaggregation than those from the CBI. Over the last quarter there has been a fall in nominal interest rates and a strengthening of sterling. As at mid- April interest rates had fallen by one percentage point from their levels in February. This fall and the expectation of further reductions in interest rates, which have now materialised, will have influenced the replies of respondents to both the SBS and CBI surveys. Whilst the trade weighted exchange rate rose by about three percent over the last quarter it is unlikely that this will as yet have had any significant impact on export orders. It is likely that the outlook of respondents in this respect is still very much influenced by last year's sharp depreciation of sterling. BUSINESS SURVEY It was observed in the February Commentary that there appeared to be some indication of a recovery in economic activity. The With the Inauguration of the quarterly latest findings of both the SBS and CBI Scottish Business Survey (SBS) in October Surveys provide further evidence to this 1984 there are now two regular up-to-date effect. Moreover, the expansion of indicators of trends in the Scottish activity which is now taking place would industrial sector. The combination of appear to be broadly based and even those the new survey and the long-standing CBI sectors which had consistently lagged in Industrial Trends Survey provides a performance are now reporting an overall comprehensive assessment of trends in improvement in their business prospects. Scottish industry. The two data sources are essentially complementary, but there are important differences between them. Whilst the CBI Survey provides information Though activity in Scotland may have been on trends by size of firm, the Scottish slower to pick-up than activity elsewhere Business Survey provides a geographical in the United Kingdom (particularly the breakdown of responses. Equally, the CBI South East), the contractionary effects of provides information on sectoral the reduction in oil prices would now employment trends, while the SBS appear to have largely abated. Even in distinguishes between male and female employment, and in some sectors between Aberdeen where the impact of the fall in full- and part-timers. In addition, the oil prices has been most sharply felt the number of respondents to the SBS is well indications are that the worst is over. over twice that of the Scottish section of Indeed the recent strengthening of oil prices is reflected in buoyant expectations of future business conditions to see whether the revival of fortunes in in oil related activity. the Construction sector can be maintained in the coming months. This is likely to depend critically on whether the momentum of recent increases in orders from the The source of the much welcome new found private sector can be sustained. vigour in the economy would appear to lie in a pronounced improvement in export competitiveness. Two forces are at work here. Firstly, there is now a large Of the manufacturing sectors identified in amount of evidence which points to the the SBS the most optimistic about conclusion that productivity growth in the prospective sales are Textiles and Food, United Kingdom is outstripping that of its Drink and Tobacco. These sectors, with trading partners. Second, the only occasional relapse, have consistently substantial depreciation of sterling which exhibited most resilience in the Scottish occurred last year would now appear to economy in the past two or three years. have percolated through to order books. Indeed acitivity in the Textiles, Leather, The combined effect of these changes has Clothing and Footwear sector has now been such, as to ensure that the benefits reached such a pitch where it would appear of improved competitiveness are now also that almost all capacity is in use. To spilling-over into non-exporting sectors meet future orders it is likely that a of the economy. significant expansion of capacity will be needed. Of the eleven sectors identified within the SBS Survey all but one claim to be In the remaining manufacturing sectors more optimistic about their prospective expectations are generally buoyant. In business conditions. Only in Mechanical Metal Manufacture and Metal Goods, sales Engineering is this optimism absent, but and orders are expected to increase and even here the neutral outlook taken by employment looks set to stabilise around respondents contrasts sharply with the present levels. In Chemicals too it is uniform pessimism which prevailed in past anticipated that sales and orders wil grow years. but further job losses look likely here. The outlook in Electrical and Electronic Engineering is again generally optimistic but an expected decline in orders On the jobs front, there remains little tarnishes the overall picture. Finally, prospect of a reduction in unemployment. in Paper, Printing and Publishing both There is, however, plenty of evidence to orders and sales are set for expansion but suggest that jobs are no longer being a majority of respondents nonetheless eroded at the rates which were experienced expect to reduce the numbers that they in recent years and there is evidence in employ. both the Scottish Business and CBI surveys to suggest that there may be some job gains in the coming months in certain In general terms, therefore, it is fair to sectors. On balance, the SBS is more conclude that prospects in Scottish optimistic on this front than is the CBI manufacturing are significantly better survey but there is no disagreement than they have been for some time. between them that job attrition rates have Whilst not all indicators in all sectors now been sharply reduced in manufacturing. support this impression the relevant comparison is with what has happened in the past. On this basis even those sectors which as yet show little In other sectors the most notable indication of expansion are far less development is the prospective expansion pessimistic about their general business of employment in Construction. For a situation than they have been for some considerable period of time, Construction time. It should be borne in mind, has been the most depressed sector of the however, that much of the registered economy. Since activity in construction improvement in activity is being Measured is often regarded as a leading indicator from a low base, so that whilst it might of likely developments in other sectors be justified to characterise recent the resurgence of construction activity manufacturing performance in terms of a bodes well for the Scottish economy. It recovery of fortunes it would be premature will therefore be of considerable interest to describe it in any stronger terms. The non-manufacturing sector of the differences do emerge. To what extent Scottish economy also shows signs of these represent a systematic bias in expansion in activity. As has already coverage of one or other (or both) surveys been observed, the Construction sector is is not clear since differences do exist in now better placed in terms of orders than their sectoral definitions. Bearing it has been for some time. The Retail these qualifications in mind it might be sector, which due to the expansion of noted that the optimistic outlook reported consumer credit in previous years, never for the Food, Drink and Tobacco sector in quite plumetted to the same depths as the SBS is contradicted by the CBI manufacturing continues to expect growth findings. In the past, however, any in its sales. With interest rates differences in findings have been short­ falling and growth now occurring elsewhere lived so that too much emphasis should not in the economy there is every reason to be placed on this isolated case. expect buoyant conditions to endure in Retail services. Wholesale distribution which has never quite matched the healthy performance of the Retail distribution To recapitulate, both SBS and CBI Surveys sector is now beginning to show steady indicate a pronounced expansion of improvement in sales. Some further activity in the Scottish economy, albeit growth is required, however, before from a low base. The source of the employment is likely to expand. Finally, stimulus to activity is most probably to Scottish Financial institutions are still be found in the combined effects of the maintaining the expansion of credit which depreciation of sterling during 1986 and has been characteristic of their activity in a marked improvement in manufacturing in past years. There is however a productivity. Whilst conditions in the noticeable change in the structure of world economy will therefore be crucial in demand for credit with the company sector determining the duration of the recovery now requiring more finance for working there is also some evidence that the capital and for investment. Advances to benefits of improved international the personal sector nonetheless remain set competitiveness are percolating through to to expand. the non-exporting sectors of the economy. In the coming months an additional fillip to activity might be expected to come from domestic sources. The results of the CBI Survey are Primary substantially in agreement with those of the SBS. Unlike the SBS, the CBI is confined to the manufacturing sector but AGRICULTURE it does provide some supplementary information to the SBS. In particular the information contained in the CBI survey points to the conclusion that it is Efforts by the European Commission to medium and large sized firms (more than continue to reform agricultural spending 200 employees) which are in the vanguard by the Community have run into stiff of the recovery which is now taking place.