A survey of Scottish manufacturing shows a "very bleak" picture, according to industry body CBI Scotland.
Manufacturing output has been reduced
Its quarterly trends study reports falling orders, declining output, pressures on prices and job losses.
Manufacturers have responded to falling demand at home and abroad by cutting back on output, it said.
The reduced output led to the pace of job-shedding over the three months to October being the fastest for a year - and the survey said further cuts seem likely.
Although manufacturing costs fell at their fastest rate for almost five years, margins
remained under pressure as prices continued to fall.
Pressures on the price of goods and profitability means more firms are cutting back on investment and training plans.
CBI Scotland director Iain McMillan said: "The results are very bleak."
He said global conditions and structural changes in the Scottish economy
played a big part in the findings.
"But the Scottish Executive could do more for manufacturing industry than
they are currently doing," said Mr McMillan.
"Water costs and rates in Scotland are too high compared with other parts of
"It is within the power of the Scottish Executive to deal with these problems
quickly and effectively.
"And in line with their own priority to work to encourage and stimulate
economic growth, ministers should act now."
The survey findings said that there was "significant" spare capacity within Scottish manufacturing.
"Expectations of an end to the recent decline in output are unlikely to be sufficient to prevent further job cuts over the coming quarter - expectations are at their weakest level since October 2002," it said.
As well as their general economic pessimism, manufacturers were also more
pessimistic about export prospects.
Overall demand dropped "sharply" in the three months to October, with new
orders falling at their fastest rate for two years and total order books well
This was said to be due to a combination of the fastest drop in new domestic orders since October 2001 and a fourth successive fall in new export orders.
Manufacturers responded to falling demand by cutting back on output, taking
the proportion of firms working below capacity to its highest since October