Scottish businesses expect fall in activity and outlook

The first major survey of Scottish businesses since the coronavirus outbreak has revealed that 85% of firms expect growth in the Scottish economy to be weak or very weak in the next 12 months, marking an increase of 53% in the previous quarter. 

Scottish businesses expect fall in activity and outlook

The latest Addleshaw Goddard Scottish Business Monitor, produced in a partnership between the Fraser of Allander Institute and international law firm, Addleshaw Goddard, indicates the net number of firms seeing an increase in their volume of business during Q1 2020 fell to its lowest level since Q1 2009.

The monitor also found that 51% of Scottish businesses have reported a reduction in the number of staff due to the pandemic, while 81% said they have reduced the number of hours staff are working.

On average, firms also expect wages to fall over the next six months, with the number expecting wages to rise, falling from 72% in Q4 2019 to 27% in the current quarter.

The outlook for the next six months looks even more stark, as would be expected, with the outlook being the most negative since the survey began in 1998.

The monitor revealed that 80% of businesses state that credit availability over the next three months will be very important or important, up from 53% in the previous quarter. This is a reversal of a long-term trend seen over the last few years as credit availability has been less of an issue for businesses.

A total of 89% of businesses also stated that their turnover has been impacted since the beginning of March because of coronavirus.

With the spread of COVID-19 recognised as a global health emergency and appropriate measures being put in place to slow it spreading, the survey suggests the economic implications are being felt by a significant number of businesses across a wide variety of sectors.

Economists from the Fraser of Allander Institute highlight how the scale of the downturn actually reflects the success of the shutdown in our economy to protect public health. In the long-run, investing in the nation’s public health is an investment in the economy.

To help provide a bridge, government aid schemes have been implemented to minimise long-term impacts, and to help activity to pick up once the crisis subsides. 

However, when asked how long businesses could survive under current levels of trading, of those who knew, 54% said less than three months while a further 32% said they could survive for four to six months.

Whilst these findings provide a stark indication of the shock the Scottish business community has felt in recent weeks, there is optimism that Government schemes will not only support businesses throughout the downturn but may also provide a platform for future economic recovery.

According to the report, more than 95% of businesses believe the ‘Coronavirus Job Retention Scheme’ being put in place will be very effective/effective in supporting their survival during the pandemic, suggesting businesses are – where possible – working hard to retain staff as much as possible rather than opting for redundancies.

Whilst there remain some teething issues with the various schemes, overall, they have been well received across the Scottish business community, and are recognised for the extraordinary and unprecedented measures they are.

Commenting on the findings, Graeme Roy, director of the Fraser of Allander Institute, said: “It is important to remember that the shutdown of all but essential activities in our economy is entirely the right response to the crisis both from a public health and long-term economic perspective. But the immediate consequences for individual firms and their employees are stark.

“The outlook for the next six months is the weakest we have seen since the survey began 22 years ago, with a sharp drop in employment and turnover.

“In time, and once we get through the public health emergency as safely as possible, we will need to turn our attention to rebuilding. Re-starting our economy, when the time is right, will require careful thought. Planning out how businesses can open-up once again, under what conditions, and at what capacity, will take time. Difficult decisions will be required about which sectors and businesses to prioritise. All of this should be done as a partnership between business their employees and policymakers, with public health advice paramount.”

David Kirchin, partner and head of corporate at Addleshaw Goddard in Scotland, added: “CV-19 has clearly and very quickly had a profound effect on businesses and this casts a temporary shadow over the overall outlook for business activity, investment and employment in Scotland, which last year was the highest it had been for six years. There is no escaping the scale of the challenge over the coming weeks and months and there is no single formula for every business to follow.

“But like any crisis, this one will end. Until then businesses grappling with cash-flow and other short-term issues would be advised to access the very substantial support from government and the wider business community to navigate these challenging times.”

Prior to the outbreak, the Scottish economy was moving in a positive direction with growth of 0.3% during the final quarter of 2019 and 0.7% over the year.

Read all of our articles relating to COVID-19 here.

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