THE dire state of the Scottish economy is depressingly obvious from the empty shops and offices across the country and the permanent sales in even the most successful stores.

So it is no surprise there was a further and more widespread weakening in business activity in the third quarter of this year. The really bad news, however, is that Scottish businesses expect demand, turnover and profitability to plunge further in the last three months of 2012 and poor performance to continue into next year.

The latest survey by the Scottish Chambers of Commerce and the University of Strathclyde's Fraser of Allander Institute is especially worrying because it shows business confidence declining across the manufacturing, construction, wholesale and tourism sectors while retailers still expect that growth will be negative, only slightly less bad. This is doubly depressing as it follows relatively upbeat projections at the beginning of this year.

In tourism the focus on London for the Diamond Jubilee, Olympics and Paralympics resulted in reduced demand and extensive cutting of room rates. While this might have been foreseen, the contrast with much earlier hopes that significant numbers of Olympic visitors would extend their stay to Scotland reaffirms the international nature of dampened consumer demand. This is underlined by a decline in export orders for a net balance of Scottish firms for the first time since the last quarter of last year.

While David Cameron devoted a considerable portion of his speech to the Tory party conference to reiterating the claim that his party's welfare policy would make work pay, this is difficult to square with the reality that an increasing number of jobs are part-time or temporary, including many of the one million he boasted had been created in the private sector. This lack of job security, combined with the knowledge that there will be further cuts to the public sector, can only increase reluctance among consumers to spend on non-essential items, leading in turn to caution and uncertainty on the part of businesses and reinforcing stagnation and negative growth.

The claim by the Prime Minister and the Chancellor this week that the UK economy is healing (just more slowly than expected) is not borne out by today's survey. Mr Cameron was notably silent on new measures to kickstart the economy yesterday but he did champion the building of more houses, albeit more to help would-be first-time buyers than to boost construction.

The Scottish Government has recognised the potential of investment in infrastructure projects to improve the wider economy but undermined its consistency of approach by cutting spending on some capital projects in last month's draft budget. It should heed the Fraser of Allander commentators' call to restore the £350 million investment cut from the electrification of the central Scotland rail network. It is essential that Government procurement supports Scottish businesses where possible if the SNP's much-vaunted shovel-ready projects are to realise their full potential in creating jobs beyond short-term construction opportunities into the supply chain.

The economic outlook is now so bleak that, even if falling inflation begins to release more consumer spending and the Bank of England's funding for lending scheme starts to unlock credit for business expansion and house-buying, the prospect of recovery remains a distant one. Stimulus measures that take effect more quickly are required from government on both sides of the Border.