December 2010

Economic Overview and Outlook

Scottish Supply Chain Conference

September 2012

Kenny RichmondScottish Enterprise

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Scottish Enterprise

We work with businesses across Scotland to stimulate economic growth and improve the business environment.

We help companies we work with to raise their sights and ambitions and consider their business from a global perspective.

We work in partnership with universities, colleges, local authorities and other public sector bodies to maximise our contribution to the Government Economic Strategy.

Scottish Enterprise - where we are

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Latest Economic Trends

• Global growth weakening since Q1….• ….mainly due to eurozone problems (sovereign

debt and banking crisis)…• …affecting global business and consumer

confidence… • …and demand for exports from US, UK, China

etc.• Other ‘headwinds’ affecting global growth:

– government austerity in many countries– indebted businesses/consumers paying of

debt rather than spending/investing– access to finance an issue for some (banks

rebuilding balance sheets)– rising commodity prices (oil +25% since

June, some foodstuffs)– weak incomes growth in advanced

economies

World GDP growth (quarterly % change)

-8

-6

-4

-2

0

2

4

6

8

%

Source IMF

Source: Markit

Source: IMF

Weakening economic activity across all major economic blocs

Manufacturing - China

Economic activity slowing or falling across most major economies according to business surveys (score of <50 indicates contraction)

• Eurozone near (or in?) recession with weakness spreading from ‘periphery’ to ‘core’ countries

Source: Markit

• US (world’s largest economy) – manufacturing affected by weakening demand for US exports

• China (world’s 2nd largest economy) – manufacturing activity falling as global export demand weakens

Forecast GDP Growth (%)

-10123456789

2012 2013Source: IMF, Fraser of Allander Institute

% Emerging economies

Advanced economies

Short term global economic prospects

62% of world economy 38% of world economy

• Growth expected to be:

– stronger in 2013

– weaker in advanced economies (that make up most of the global economy).

• IMF, OECD etc have downgraded 2012 & 2013 forecasts – and are expected to downgrade again

• Eurozone the main risk to global

Global economic growth trends – implications for Scotland (exports)

  2012 2013

USA2.0% 2.3

%

Canada2.1% 2.2

%

2012 2013

Euro area –0.3% 0.7%

Germany 1% 1.4%

France (5 0.3% 0.8%

Italy –1.9% –0.3%

Spain –1.5% –0.6%

2012 2013

3.4% 4.2%

Europe

North America 2012 2013

2.4% 1.5%

Japan

£3.8bn

£0.3bn

£11.7bn

£0.8bn

High growth

Medium growth

Low growth

Latin America

UK

£1.6bn

£45bn

GDP growth forecast

£2.1bn

2012 2013

Mid East & N Africa 5.5 3.7

Sub Saharan Africa 5.4 5.3

2012 2013

DevelopingAsia

7.1 7.5

China 8 8.5

India 6.1 6.5

Developing Asia

2012 2013

0.2% 1.4%

Scottish exports 2010

Source: IMF, Scottish Government

UK and Scottish Trends

• Consumer/household spending under pressure– Weak incomes growth– Labour market uncertainty– Paying down debts

• Business investment slowing - blip or trend?– Uncertainty of demand– Focus on efficiencies rather than long term

investment– Increasing hrs worked rather than investing in

new machinery– Repair and maintenance rather than new

• Government spending– Most cuts still to come

• Export markets – Some softening in key markets

Implications for ‘rebalancing the economy’??

Source: Nationwide

Scottish export performance

Index of Scottish Manufactured International Exports (1998 Q1=100)

75

80

85

90

95

100

105

110

• Official data up to 2012 Q1 suggests softening export activity

• More recent business surveys suggest falling export orders esp from eurozone

• Some indications of growth in exports to non-EU countries

Lloyds TSB Scotland Business Monitor

Net Balance of businesses reporting increased exports

Source: Scottish Government

Scottish Economic Performance

Quarterly GDP Growth (%)

-2.5-2.0-1.5-1.0-0.50.00.51.01.5

UK

Scotland

No Scottish data yet

• Official data shows Scotland in recession Q4 2011 and Q1 2012

• More recent Scottish business survey data suggests continued fall in GDP in in Q2 and Q3

Bank of Scotland PMI Survey

Source: Scottish Government

Scottish economic performance by sector

GDP Quarterly Growth Rates (%), Construction

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2007 2008 2009 2010 2011 2012

Source: Scottish Government

GDP Quarterly Growth Rates (%), Services

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2007 2008 2009 2010 2011 2012

Source: Scottish Government

• Scottish GDP fall due to significant contraction in construction (7.5% of the economy)

• Service sector (73% of the economy) showing weak growth

• Manufacturing performance (12.5% of the economy) also relatively weak

GDP Quarterly Growth Rates (%), Manufacturing

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2007 2008 2009 2010 2011 2012Source: Scottish Government

Global economic trends – implications for Scotland

• General uncertainty – hitting Scottish business and consumer confidence• Weakening growth in export markets – declines in export orders for some (but not

all) companies• Eurozone crisis

– sterling/euro exchange rates becoming less favourable – availability and cost of funds for lending – UK banks’ exposure to eurozone

• UK government austerity – most spending cuts still to come (implications for capital investment, procurement opportunities, general ‘spill overs’)

• Rising prices for some commodities (oil, food) – squeezing margins

• Not all bad news:– Scottish oil & gas sector booming– Growing demand for Scottish food and drink (high value products)– Growth among innovative, competitive, customer focused and internationally

focused companies– Opportunities in ‘new’ sectors e.g. renewables– Scotland still very attractive to mobile investors

Scottish and Global Economic Trends – supply chain and logistics implications

• Slower growth – less goods to move?

• Sectoral growth – supply chain/logistics requirements – and opportunities?

– Oil & gas, food & drink, pharmaceuticals – export growth

– ‘new’ sectors e.g. renewables

• Increasing importance of non-EU markets – changing logistics/transport requirements?

• Businesses focusing on cost cutting – logistics and supply chain efficiencies?

• Move to local supply chains – implications?

– quality control

– reduced transport costs (and environmental benefits)

• Rising fuel costs – a short term blip or long term trend?

– transport costs, fossil fuel substitution