A new report has suggested that business investment in Scotland has lagged for the majority of the past decade, warning of the detrimental impact this could have on productivity and longer-term economic growth.
The Scottish business survey, compiled by the Fraser of Allander Institute and produced in partnership with Addleshaw Goddard, has marked 100 of these monitors by publishing analysis of the past 25 years of business in Scotland, highlighting how Scottish firms have coped with significant changes in the economic landscape.
The latest findings show that business sentiment fell to a 25-year low at the start of the pandemic in 2020, significantly lower than that felt during the 2007/08 global financial crisis.
While exporting levels have recovered since the lowest rate recorded by the monitor in 2020, the net balance of firms reporting an increase in current and expected export activity remains well below zero as of the fourth quarter of 2022.
Additionally, the share of firms reporting increased costs reached their highest levels on record towards the end of 2021 and throughout 2022.
In the institute’s most recent quarterly monitor, published in January, 90% of firms surveyed had seen their costs increase on the year, with just under half reporting that they expected to reduce operations in 2023 due to higher energy bills.
However, the latest quarterly results found that businesses are increasingly taking steps to tackle the current energy crisis, with more than 60% of firms reporting that the energy crisis has encouraged them to speed up making energy-efficient improvements.
This is just one of many times the business monitor has captured resilience among Scottish firms. At the start of last year, the institute found that 40% of businesses agreed that the pandemic had accelerated their plans to make a major part of their business model digital.
But, while Scottish businesses have repeatedly demonstrated their resilience, the report stated that it is crucial that businesses are not just staying afloat but that investment is made for future growth.
Since 2014, new capital investment made by Scottish firms has been weak, and despite recovery from the record lows seen in 2020, business investment has fallen consecutively each quarter since the fourth quarter of 2021.
Professor Mairi Spowage, director of the Fraser of Allander Institute, said: “Scottish firms have had to weather a number of storms over the past 25 years, and their resilience is once again being tested as they navigate through the current cost-of-doing business crisis.
“Concerningly, our latest findings show consistently low levels of export activity and business investment, which are key drivers of productivity.
“While business resilience has been shown time and time again, Scottish businesses need support to secure longer-term business and economic growth.”
Alan Shanks, head of Scotland at Addleshaw Goddard, added: “The Scottish Business Monitor launched in the same year I began my legal career, and having worked closely with Scottish businesses of all sizes throughout this period I have seen first-hand the collective strength they have shown.
“The Scottish business community will need to show continued resilience to deal with the numerous uncertainties currently facing it.“
Launched in 1998 and now in its 25th year, the quarterly monitor is published weeks in advance of national statistics, allowing the temperature of the economy to be taken closer to real-time.
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