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Scottish economy struggling as service sector weak

SCOTTISH companies have suffered a second consecutive quarterly fall in overall turnover, a Lloyds TSB Scotland survey signals today, but the bank's chief economist is emphasising that there is "no definite sign" of double-dip recession.

Chief economist Donald MacRae, who believes the Scottish economy is achieving "continuing slow recovery with negligible growth", is encouraged by an improvement in firms' assessment of the outlook.

However, the findings of the Lloyds TSB Scotland Business Monitor for the three months to February would seem unlikely to dispel fears of double-dip recession. In particular, the survey signals that Scotland's dominant services sector is in weak shape.

UK-wide economic output fell 0.2% in the final quarter of 2011.

Economists including Brian Ashcroft, emeritus professor at Strathclyde University and economics editor of the Fraser of Allander Institute commentary, have expressed worries that the Scottish economy would also have contracted in the final three months of last year. Fourth-quarter Scottish gross domestic product data are due next month.

Hopes have been rising that the UK can in the three months to March dodge a second consecutive quarter of contraction, thus avoiding renewed recession. But this is far from a foregone conclusion.

The latest Lloyds TSB Scotland monitor signals companies north of the Border turned in an even weaker performance in the three months to February than they did in the preceding three months.

Of 410 firms which responded to the latest monitor, 35% reported a fall in turnover and only 29% achieved a rise.

The net 6% reporting a decline was even worse than the balance of 3% experiencing a fall in the previous survey of the three months to November.

In the latest survey of the three months to February, a net 11% of services companies saw a fall in turnover.

In contrast, a balance of 2% of production firms achieved a rise in turnover.

But there was an improvement in production and services companies' expectations of turnover over the coming six months.

A net 2% of Scottish companies predicted a rise in turnover during the six months to August. This was a sharp improvement on the previous quarterly survey, in which a net 14% of firms predicted a fall in turnover over the coming six months.

Mr MacRae said: "This latest business monitor suggests the muted recovery in the Scottish economy has yet to pick up pace. However, there is no definite sign of a lapse into a 'double dip' but every indication of a continuing slow recovery with negligible growth in the latest quarter."

He added: "There is a discernible uplift in business confidence, with expectations recovering from the downwards plunge of last quarter. The risk of a return to recession or a 'double dip' has reduced and the likelihood of growth, albeit low, in the Scottish economy for 2012 has improved."

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