A key survey paints a bleak picture of trading in the Scottish manufacturing, construction, tourism, retail and wholesale sectors, and shows businesses have revised down their expectations for the final three months of this year and first half of 2013.
The survey, published by Scottish Chambers of Commerce and conducted by Strathclyde University's respected Fraser of Allander Institute, highlights the impact of the UK Government's public spending cuts on consumer confidence and consequently on the business community north of the Border.
It follows an International Monetary Fund forecast on Tuesday that UK economic output will fall by 0.4% this year. Among the major economies for which the IMF published forecasts this week, only Italy and Spain are expected to perform worse.
Prime Minister David Cameron is sticking with the Coalition's austerity policy, in spite of renewed recession in the UK, and yesterday told the Conservative Party conference in Birmingham that Britain faced an "hour of reckoning".
Publishing its grim economic survey, Scottish Chambers declared it was now imperative that Chancellor George Osborne took the opportunity to deliver a boost to capital investment in his autumn statement.
It warned: "In all sectors, the main trends in activity remain weak, reinforcing the sense of weak, stagnating demand and continuing negative growth.
"Continuing consumer uncertainty and ongoing public-sector cuts and reorganisations will be important features in 2012/13, and will continue to contribute to a sense of caution and uncertainty in the business community."
Its study shows tumbling confidence in all of the sectors it covers, with manufacturers, construction firms, tourism providers, retailers and wholesalers all reporting sharp falls in overall optimism in the third quarter.
It reveals a plunge in manufacturers' orders from Scotland, the rest of the UK and overseas markets, and highlights expectations among manufacturers north of the Border that their profitability will fall sharply during the next 12 months, with turnover expected to dip.
The document also points to a decline in the Scottish manufacturing workforce in the third quarter, and to a continuation of job losses in the sector.
Scottish Building Federation chief executive Michael Levack said Scottish ministers must do more to kick-start the economy.
"While I recognise the efforts Scottish ministers are making in the face of tough budgetary constraints, there's no escaping the fact that the Scottish Government is due to spend £2.2 billion less on capital projects over the next three years than it has over the past three years – a reduction of 23%," he said.
"At a time when there are still few signs of life in the private sector, we must strain every sinew to commit more public resources towards building the infrastructure our economy needs to recover."
Meanwhile, Scottish Chambers said tourism providers had reported sharp falls in demand from within Scotland, from elsewhere in the UK, from overseas and from businesses in the third quarter.
VisitScotland chairman Mike Cantlay said in response: "There is no denying it has been a challenging year and so value for money is more important than ever for our visitors. However, when the going gets tough, we get tougher and sell harder."
Richard Dodd, of the Scottish Retail Consortium, said: "Retail sales in Scotland have been poorer than the rest of the UK as a whole for at least the last year.
"We need support for our customers – we'd particularly like to see the Westminster Government scrap the planned fuel duty increase. We'd like the Scottish Government to fix business rates next year after two years of enormous increases which have had a damaging impact on retail."
However, Dr Colette Backwell, director of the Scottish Food and Drink Federation, insisted the consumables manufacturing sector had remained resilient.
She said: "Going against the general fall in non-food sales in July and August, food and drink sales picked up due to the popularity of the Olympics, with millions dining in to enjoy coverage, and the milder weather leading to a 4% increase in output over the period."
Garry Clark, head of policy and public affairs at Scottish Chambers, said: "Our latest survey suggests many Scottish businesses experienced deteriorating business conditions in the third quarter, and have revised downwards their expectations for the fourth quarter and first half of 2013. Once again, with few exceptions, demand remains weak and inadequate, and the sense of an economy stagnating appears more widespread."
Deputy First Minister Nicola Sturgeon said: "We are using every lever at our disposal, within our limited devolved powers, to boost capital spending and help the Scottish economy. Our budget for 2013-14 is focused on jobs and growth that will provide further investment in construction, skills and the green economy backed by £180 million of stimulus.
"But we could do so much more if, through independence, we had the full range of economic powers to promote growth, employment and opportunity."
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