The latest Bank of Scotland PMI report suggests the private sector slipped into reverse in September after months of anaemic growth as the fall-out from the eurozone crisis took a heavy toll on firms.
The headline output index reading fell from 50.3 in August to 49.6 in September. This was the first reading below the 50 mark that separates expansion from contraction since December 2010.
While the private sector contracted only slightly last month, the report includes worrying signs the economy is losing momentum in the face of strong headwinds at home and overseas.
"The Scottish economy is struggling to maintain growth momentum in the face of both the eurozone and global slowdowns" said Donald MacRae, chief economist at Bank of Scotland.
Based on a survey of firms across Scotland, the PMI indicates the problems in the eurozone are weighing increasingly heavily on the manufacturing sector in Scotland, which suffered the sharpest fall in output for 20 months.
While the key services sector expanded, firms in areas like financial services achieved only a marginal rate of growth overall.
News that the private sector maintained employment levels overall in Scotland provided a bright spot. However, with businesses reporting a renewed spike in the cost of key inputs such as fuel and commodities, private sector operators are facing challenges on several fronts.
Firms in Scotland appear to be having a tougher time than those south of the Border.
The report may stoke concern that Scotland is in the grip of a double-dip recession that could last for some time yet.
Scotland formally re-entered recession in the first three months of 2012, with a second successive quarterly fall in output. The Scottish Government will release second-quarter figures on October 17.
With economic policy under the spotlight during the party conference season, the findings may prompt renewed calls for the Coalition Government to do more to kick-start economic growth.
The private sector appears to be finding it increasingly difficult to take up the slack that is resulting from deep cuts in public spending under the Government's controversial deficit-reduction strategy.
The report suggests the manufacturing sector, which ministers hope will help rebalance the economy to make it less reliant on financial services, is facing mounting challenges.
Bank of Scotland said: "September saw a further marked decrease in goods production in Scotland."
The sector output index fell to 45.5 from 45.8 in August.
The bank highlighted a "sharp and accelerated decrease in new export orders, the most marked in 40 months". While the service sector recorded growth overall, the rate of expansion was not fast enough to compensate for the downturn in manufacturing.
The services activity index reading eased to 50.9, from 51.9 in August. Firms in travel, tourism and leisure saw a second successive drop in activity, with a reading of 48.7, compared with 49.5 in August.
Financial services firms achieved growth, but the activity reading fell to 52.3 from 55 in August. Levels of new business fell for the second month running. Business services firms, such as consultants, increased activity and new business, but at fairly modest rates.
The UK achieved growth in September with a composite activity index reading of 51.3, down from 52.6 in September.
The composite employment index of 50.1 in Scotland points to a very slight increase in jobs. Employment fell across the UK, with a reading of 48.1.
However, manufacturers in Scotland cut jobs for the second month running.
The composite new business index reading of 48.4 in Scotland compared to the 52.6 reading in the UK.
The index for input prices increased to 60.9 in Scotland, from 59.1 in August. The UK index increased to 56.6 from 54.8.
A Scottish Government spokesperson said: "As our draft Budget demonstrated, we are taking action to boost growth, and this includes a tax relief package worth over £500m this year and a further £105m package of economic stimulus."
Contextual targeting label: