1. December 2010 Economic Overview and Outlook Scottish Supply Chain Conference September 2012 Kenny Richmond Scottish Enterprise

2. 1 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.

3. Scottish Enterprise - where we are 2

4. 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 Source: Markit Source: IMF

5. 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 2 nd largest economy) – manufacturing activity falling as global export demand weakens

6. 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

7. Global economic growth trends – implications for Scotland (exports) 20122013 USA 2.0%2.3% Canada 2.1%2.2% 20122013 Euro area–0.3%0.7% Germany1%1.4% France (50.3%0.8% Italy–1.9%–0.3% Spain–1.5%–0.6% 20122013 3.4%4.2% Europe North America 20122013 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 20122013 Mid East & N Africa5.53.7 Sub Saharan Africa5.45.3 20122013 Developing Asia 7.17.5 China88.5 India6.16.5 Developing Asia 20122013 0.2%1.4% Scottish exports 2010 Source: IMF, Scottish Government

8. 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

9. 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 Net Balance of businesses reporting increased exports Source: Scottish Government

10. 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 Bank of Scotland PMI Survey Source: Scottish Government

11. Scottish economic performance by sector 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

12. 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

13. 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