SCOTLAND'S key engineering sector has returned to growth, according to survey findings that will boost hopes the economy is on course for recovery – albeit at a modest rate.

Industry body Scottish Engineering said members reported a surge in orders in the latest quarter after a dip in the preceding three months, as they cashed in on the boom in oil and gas market activity.

In its quarterly review, Scottish Engineering also reported an increase in optimism among members. One-third of respondents said they were planning to increase investment in a sign of confidence in their prospects.

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With one-quarter of firms expecting to increase employee numbers, the sector may give a much-needed boost to the labour market.

The figures should make heartening reading for ministers. Hopes growth in sectors like engineering will help rebalance the economy were dimmed by indications in the summer that recovery in manufacturing was flagging amid the eurozone problems.

An influential economic forecaster yesterday said the performance of Scotland's manufacturing sector was one of the bright spots in a lacklustre economic performance this year.

The Ernst & Young Scottish Item club predicted the economy would contract by 0.1% north of the Border this year.

Forecasting growth of just 0.7% in 2013, Dougie Adams, senior adviser to the Scottish Item Club, said: "It will be at least 2016 before output per head surpasses pre-crisis levels (in early 2008)."

The club said the overall output decline of 4.4% over the past four years puts Scotland's performance on a par with that of Spain.

Peter Hughes, chief executive of Scottish Engineering, said: "It is pleasing to note our sector is reporting positive results."

Mr Hughes said the sector appeared to have weathered the economic downturn which threatened to hit the third quarter.

However, he said: "As always, UK and export sales margins remain under pressure. Our member companies continue to express their concerns regarding the lack of information as we head towards the 2014 referendum.

"The uncertainty surrounding a post-referendum Scotland is still a major issue for business."

Scottish Engineering also voiced concern about skills shortages, with machinists and welders in particularly short supply.

A Scottish Government spokesman said: "Now that the Edinburgh Agreement has been formalised, we are moving beyond the technical discussions on how the referendum is conducted and getting on with the business of setting out the clear opportunities available to Scotland as an independent country.

"A referendum in autumn 2014 ensures that there will be sufficient time for these issues to be properly aired and debated."

Mr Adams added: "Slight growth should be generated in Scotland next year, so long as the worst fears over the eurozone and US budget prove to be overblown."

The club believes boosting performance in export markets will be key to any recovery.

It expects the Scottish economy to grow by 1.8% in 2014, compared with 2.4% for the UK. The club also forecasts the UK economy will grow by 1.2% in 2013.

Its experts predict the Scottish economy will add 45,000 jobs over the next three years, during which the public sector will shed 25,000 jobs.

Scottish Engineering said 38% of respondents reported an increase in orders, compared with 27% that said orders fell. The remaining 35% of members maintained orders.

Some 60% of the firms that supply oil and gas firms said orders increased, while 40% said business was maintained. No respondents reported a fall.