THE growth rate in Scotland's private-sector economy slowed to an 18-month low in September when manufacturing output slumped but firms continued to take on staff, a survey has found.
The latest in the closely watched PMI series of surveys for Bank of Scotland points to a marked slowdown in growth in September when the headline index fell to 51.5 from 54.6 in August.
With the reading sitting uncomfortably close to the 50 mark that separates expansion from contraction, the findings will lend weight to fears the economic recovery is flagging in Scotland.
They suggest the key manufacturing sector is facing serious challenges as the weakness in the Eurozone takes a toll on exports.
Manufacturers recorded their first fall in output in nine months in September while new orders fell for the first time since early last year. The PMI suggests uncertainty about the outcome of the referendum on Scottish independence held on September 18 weighed on the financial services sector during the month.
Donald MacRae, chief economist at Bank of Scotland, said financial services saw a slowdown in the rate of growth of new business aggravated by the uncertainty created by the referendum.
However, he noted: "Despite this slower increase in (overall) business activity, employment increased in both the manufacturing and services sectors indicating continuing confidence for the future and the prospect of a rebound in activity in October."
The PMI results indicate Scotland is being hit harder by problems in export markets than other parts of the UK. The gap between the growth rates recorded in Scotland and the UK overall widened in September.
The effects of the renewed problems in the Eurozone were writ large in the results for Scotland's manufacturing sector for September. The manufacturing output index reading plunged to 49.2, from 55.7 in August.
Bank of Scotland said: "A key factor underpinning the dip in production levels was a drop in new order inflows at the end of the quarter, according to anecdotal evidence."
The new orders index fell from 56.8 to 49.2, taking it into negative territory for the first time the start of 2013. Sales to UK customers were not strong enough to compensate for the seventh fall in export orders in eight months.
The services activity index reading fell from 54.4 in August to an 18-month low of 52.1 in September.
Bank of Scotland said the reading was at a level indicative of only a modest rate of expansion.
The weakest trend in business activity was in financial services.
However, sector players won increased amounts of new business in September. The relevant index reading increased to 52.8 from 51.4 in August.
"Where growth in new work was registered, this was sometimes attributed to increased marketing activity and greater opportunities to tender," said Bank of Scotland.
Labour market trends appear to be very positive in the services sector in Scotland.
The sector employment index increased from 54 in August to a seven month high of 54.3 in September. This was the second highest reading in seven years.
The bank said firms that added staff to their payrolls during the month commented on increased workloads, new product launches and preparation for anticipated future growth.
While the manufacturing employment index reading fell to 52.4 in September, from 56.7 in August, the bank said the increase in factory employment was still solid.
The overall employment index for Scotland fell to 53.9 in September, from 54.5 in August.
The headline PMI index reading for the UK fell to 57.4 in September from 59.3 in August.
The gap between the readings for Scotland and the UK widened to 5.9 points from 4.7 points.
The UK employment index reading increased to 54.9 from 54.1.
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