Transcript Growth Capital Fund Assumptions

Economic Overview and Outlook
Scottish Supply Chain Conference
September 2012
December 2010
Kenny Richmond
Scottish Enterprise
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.
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Scottish Enterprise - where we are
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Latest Economic Trends
Source: IMF
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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)
Source IMF
8
6
4
2
0
-2
-4
-6
-8
20
07
Q
1
20
07
Q
3
20
08
Q
1
20
08
Q
3
20
09
Q
1
20
09
Q
3
20
10
Q
1
20
10
Q
3
20
11
Q
1
20
11
Q
3
20
12
Q
1
•
•
Source: Markit
Weakening economic activity across all major economic blocs
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
• 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
Manufacturing - China
Source: Markit
Short term global economic prospects
• 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
Forecast GDP Growth (%)
%
Emerging economies
2012
Source: IMF, Fraser of Allander Institute
62% of world economy
M
ex
ic
o
l
ra
zi
B
In
di
a
na
C
hi
E
m
er
gi
ng
Ja
pa
n
A
U
S
ar
ea
E
ur
o
U
K
co
t la
nd
S
dv
an
ce
d
Advanced economies
A
W
or
ld
9
8
7
6
5
4
3
2
1
0
-1
38% of world economy
2013
Global economic growth trends – implications for Scotland (exports)
North America
2012
2013
USA
2.0%
2.3%
Canada
2.1%
2.2%
Europe
Japan
GDP growth
forecast
2012
2013
2.4%
1.5%
Scottish
exports 2010
£0.3bn
£3.8bn
£11.7bn
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%
Developing Asia
£1.6bn
£0.8bn
£45bn
Latin America
2012
2013
3.4%
4.2%
2013
7.1
7.5
China
8
8.5
India
6.1
6.5
Developing
Asia
UK
2012
2013
0.2%
1.4%
£2.1bn
High growth
Source: IMF, Scottish Government
2012
2012
2013
Medium growth
Mid East & N Africa
5.5
3.7
Low growth
Sub Saharan Africa
5.4
5.3
UK and Scottish Trends
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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
• 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
Index of Scottish Manufactured International
Exports (1998 Q1=100)
Net Balance of businesses reporting
increased exports
110
105
100
95
90
85
80
Source: Scottish Government
20
12
Q3
20
11
Q3
20
10
Q3
20
09
Q3
20
08
Q3
20
07
75
Scottish Economic Performance
• 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
Quarterly GDP Growth (%)
07
20
UK
Scotland
Q1
Q2
Q3
20 Q
08 4
Q1
Q2
Q3
20 Q
09 4
Q1
Q2
Q3
20 Q
10 4
Q1
Q2
Q3
20 Q
11 4
Q1
Q2
Q3
20 Q
12 4
Q1
Q2
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
No
Scottish
data yet
Source: Scottish Government
Bank of Scotland PMI Survey
Scottish economic performance by sector
• Scottish GDP fall due to significant
contraction in construction (7.5% of the
economy)
GDP Quarterly Growth Rates (%), Construction
8.0
6.0
4.0
2.0
• Service sector (73% of the economy)
showing weak growth
0.0
-2.0
-4.0
• Manufacturing performance (12.5% of the
economy) also relatively weak
-6.0
-8.0
Q1
Q2
Q3
Q4
Q1
2007
Q2
Q3
Q4
Q1
2008
Q2
Q3
Q4
Q1
2009
Q2
Q3
Q4
Q1
2010
Q2
Q3
Q4
2011
Q1
2012
Source: Scottish Government
GDP Quarterly Growth Rates (%), Manufacturing
GDP Quarterly Growth Rates (%), Services
4.0
1.0
3.0
2.0
0.5
1.0
0.0
0.0
-1.0
-2.0
-0.5
-3.0
-4.0
-1.0
-5.0
-6.0
-1.5
-7.0
Q1
Q2
Q3
2007
Source: Scottish Government
Q4
Q1
Q2
Q3
2008
Q4
Q1
Q2
Q3
2009
Q4
Q1
Q2
Q3
2010
Q4
Q1
Q2
Q3
2011
Q4
Q1
2012
-2.0
Q1
Q2
Q3
2007
Source: Scottish Government
Q4
Q1
Q2
Q3
2008
Q4
Q1
Q2
Q3
2009
Q4
Q1
Q2
Q3
2010
Q4
Q1
Q2
Q3
2011
Q4
Q1
2012
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
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Slower growth – less goods to move?
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Sectoral growth – supply chain/logistics requirements – and opportunities?
– Oil & gas, food & drink, pharmaceuticals – export growth
– ‘new’ sectors e.g. renewables
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Increasing importance of non-EU markets – changing logistics/transport requirements?
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Businesses focusing on cost cutting – logistics and supply chain efficiencies?
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Move to local supply chains – implications?
– quality control
– reduced transport costs (and environmental benefits)
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Rising fuel costs – a short term blip or long term trend?
– transport costs, fossil fuel substitution