SCOTLAND'S key engineering sector has suffered its first fall in orders in six quarters as tough conditions in export markets posed big challenges for firms.

In the latest quarterly review by Scottish Engineering, 37 per cent of respondents reported that orders fell in the last three months while only 33 per cent recorded an increase.

The resulting negative balance of four per cent was the first recorded since the quarter to March 2013, although small firms bucked the trend.

Loading article content

The results point to a marked downturn in trading conditions following a long period in which Scottish engineering firms increased orders amid the global economic recovery.

A negative balance of 23 per cent of firms saw overseas orders fall in the latest period, the worst reading in three years.

The findings paint a worrying picture of the state of export markets, which are key to the sector's prospects. Ministers are keen to see growth in areas like engineering in order to help rebalance the economy to make it less reliant on consumer spending as an engine of growth.

Scottish Engineering said global forces are having a detrimental effect on the industry in Scotland.

The chief executive of the industry body, Bryan Buchan, noted that the effects of the recovery in the US are being offset by the remaining fragility around the Eurozone.

He added: "The whole adverse mix is exacerbated by the effect of sanctions on Russia, compounding their economic decline and a slowdown in Chinese growth."

The strength of the pound has made it more difficult for Scottish firms to sell overseas.

Conditions also appear to have got tougher closer to home. A negative balance of three per cent reported a fall in UK orders in the latest quarter. That compared with a positive balance of 20 per cent in the quarter to June.

The majority of respondents increased or maintained output in the latest period as they worked through their order books, although the balance of seven per cent reporting an increase in output was the lowest recorded in the last six quarters.

However, Scottish Engineering said optimism levels remained positive, although down slightly on the preceding quarter.

Firms expecting UK and export orders to increase clearly outnumbered those expecting sales to fall.

A balance of five per cent of respondents increased staffing in the latest period, but big firms said employee numbers had fallen.

Firms of all sizes plan to increase capital investment in things like plant and machinery and to spend more on training.

Mr Buchan said the engineering sector in Scotland is in a relatively strong position in terms of its international competitiveness, thanks to improving efficiency and cost containment.

He concluded: "The engineering manufacturing sector, in common with the rest of the country is undoubtedly suffering from Referendum fatigue and we welcome the prospect of moving forward in the last quarter of the year."

Official figures have shown the volume of Scottish manufactured exports increased by three per cent in the first quarter of 2014. The volume fell by five per cent in the fourth quarter of last year, partly because of the temporary closure in October 2013 of the Grangemouth refinery and petrochemical complex.

Scottish Engineering found a balance of seven per cent of small firms increased orders in the latest quarter.

A balance of 14 per cent of all respondents were more optimistic than in the the previous three months, down from 29 per cent in the preceding quarter.

A balance of 27 per cent expect export orders to increase, with a balance of 20 per cent predicting UK sales will rise.

Balances of 19 per cent and 29 per cent plan to increase capital investment and training budgets.