Investment intentions scaled back as industry confidence withers
Scottish industry expects to scale back its investment plans over the coming year following a stumble in business confidence over future prospects.
CBI Scotland’s latest Industrial Trends Survey, published today, reveals that business optimism about the business situation has withered to its lowest level for three years.
Falling confidence, concerns over economic conditions abroad, and a spike in uncertainty about future demand is causing firms to scale back their plans to invest in innovation, training, buildings, and machinery. It is the first time in three years that a majority of firms have reported their intention to reduce expenditure across all four investment indicators.
The survey covers sectors such as: textiles; chemicals; food and drink; metals and metals manufacturing; mechanical, instrument, electrical and vehicle engineering.
It reports that the total volume of new orders dipped further over the past three months, remaining negative for the third successive quarter and at their weakest level since January 2009. Expectations for the next three months are at their weakest since April 2009.
Numbers employed eased back during the past quarter and are expected to remain subdued over the next three months.
Scottish industry reported that average unit costs eased back over the past quarter, despite being able to raise both domestic and export prices during the period. Firms don’t expect to be so able to pass on rising costs in the next quarter.
Firms report that concerns over the ability to raise external finance to fund activity and investment has diminished further.
Commenting on the results, Iain McMillan, Director of CBI Scotland, commented:
“There is no getting away from the fact that this is a further set of disappointing results. A weak economy and worries over the Eurozone, our biggest export market, are affecting business confidence, and this is leading firms into shrinking their investment plans.
“A clear and orderly resolution to the Eurozone crisis will be essential to prevent further effects on both domestic manufacturing and the wider economy, and to lift business confidence.
“There are things government can do to assist.
“The Scottish administration has set a welcome target for export growth, but they need to put much more flesh on the bones as to how this step change in performance will be achieved. Scottish Ministers should provide pump-prime funding to help establish more direct air connections to key overseas business destinations and hubs, in order to make it easier for Scots manufacturers to access new markets.”
“Similarly, the decision to block extra runway capacity in London has cast doubt over the UK Government’s strategy for helping Scottish firms expand abroad. If we are to see a re-balancing of our economy towards investment and exports then it is important that firms are able to access London’s key interlining airports in order to target key overseas markets or service foreign-based customers.”