Page last updated at 13:48 GMT, Monday, 12 October 2009 14:48 UK

Scots economy continues recovery

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The report warns more jobs are likely to be shed during the recovery

Scotland's economy is continuing to show signs of recovery, according to the latest survey of business managers.

A report by economic consultancy Markit said September saw the first rise in both manufacturing and service sector output since February 2008.

But it warns more jobs will be shed as companies wait for their order books to catch-up with their capacity.

The report also said companies were seeing their costs rising while being forced to offer customers discounts.

Douglas Fraser
Douglas Fraser, BBC Scotland business editor

The survey of business managers gives the best monthly update on what's happening to the private sector's order books, and it shows that the turnaround is shaky.

We've been warned the economy would bump along for a while, and this suggests that warning was right.

Prospects are still in positive territory, but that improvement is decelerating.

Job-shedding is in negative territory, but that worsening is decelerating.

Perhaps the most telling element is the need for discounting in order to win orders.

Set that against the rising cost of input costs, and you can see a squeeze on company finances which will be hard to sustain.

Those rising input costs, notably in energy, are worth watching closely.

The Markit Scotland PMI (Purchasing Managers' Index) survey has been released exactly a year after Scotland's two biggest banks had to be bailed out by the UK government, contributing to the country's rapid descent into recession.

Markit economist Andrew Self said: "Whilst in a technical sense the economy may have exited recession, economic conditions remain uncertain, new contracts have been won on the back of heavy discounting - which cannot continue indefinitely - and employment levels continue to fall.

"Furthermore, Scotland's recovery path continues to lag behind that of the UK as a whole."

The report is based on data compiled from monthly replies to questionnaires sent to purchasing staff in a representative sample of more than 600 private manufacturing and service sector companies.

The data revealed a third successive monthly rise in private sector output, although the overall pace of growth has weakened.

While manufacturing output has increased, the sector is continuing to see a fall in demand - this has heightened fears that more jobs will be shed in the coming months.

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