GROWTH in Scotland's private sector slowed to a crawl in May according to research findings that may trigger renewed fears the country will suffer a double-dip recession.
The latest Bank of Scotland Purchasing Managers Index points to a marked deterioration in conditions in the private sector economy last month when the growth rate dipped to a 17-month low and job creation stalled.
With problems in the key services sector outweighing a relatively good performance by manufacturers, the headline index reading fell to 50.8 in May from 53.5 in April.
As a reading of 50 separates expansion from contraction, the PMI suggests the economic recovery in Scotland is at risk of petering out even if Scotland manages to avoid a technical recession, defined as two successive quarters of falling output.
Ministers will have to wait until the release of Scotland's gross domestic product figures for the first quarter, in July, before they will know if the nation managed to avoid joining the UK in recession in the six months to March. Scottish GDP fell by 0.1% in the last quarter of 2011.
On the plus side the PMI provides signs that Scotland's manufacturers are cashing in on the boom in markets like Asia and the Middle East. However, Donald MacRae chief economist at Bank of Scotland, said: "Weakness in the domestic economy is being offset by export demand, but it is insufficient to generate a more robust recovery. The Scottish economy is struggling to maintain growth momentum in the face of the global slowdown."
Completed by Markit Economics, the PMI found the services sector suffered a big slowdown in growth in May, when activity increased at the slowest in 17 months.
It raises questions about the state of the key financial services sector, hit hard by the fallout from the banking crisis of 2008.
Following robust increases in activity in March and April, financial services firms recorded only marginal growth in May, with an activity reading of 50.8.
The volume of new business fell across the sub-sector, despite the decision by some firms to increase marketing.
Poor weather took a toll on the tourism and leisure businesses. After recording strong growth in April the sub-sector went into reverse, with an activity reading of 49.6 in May compared to 56.3 in April.
The slowdown in the growth rate in the services sector was offset by an upturn in the manufacturing sector, which returned to growth after falling in April.
Bank of Scotland said: "Scottish goods producers recorded a solid and accelerated rise in new export orders in May. The increase was the strongest since last August. Panelists indicated new business had been won across the Middle East and east Asia."
Manufacturers increased employment at the fastest rate for eight months.
However, overall employment levels flatlined following six months of growth. The composite index reading fell to 50 in May from 52.5 in April, which was the fastest rate in 57 months.
Bank of Scotland said staffing levels in financial services and travel, tourism and leisure fell for the first time in seven and five months respectively.
The slowdown in services resulted in Scotland falling behind the rest of the UK in May. The headline index reading for the UK fell to 52.1 in May from 52.9 in April. The employment reading in the UK fell to 51.3 from 51.8.
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