Manufacturing exports have fallen

The survey found that a fall in the rate of new sales had led to a drop in prices in the manufacturing sector, forcing businesses to consider reducing employee numbers.

It indicated there would be no solid recovery until the US market, which is also experiencing a slump, picks up.

CBI Scotland, which represents nearly 27,000 firms, said it was also concerned by disproportionately high business and water rates.

It warned that new planning rules could make it harder for companies to locate north of the border.

The evidence was produced in the group's Scottish Industrial Trends Survey, which measured key indicators among manufacturers in the three months to July.

'Public sector growth'

Iain McMillan, director of CBI Scotland, said the recovery of the US markets would be the main factor influencing exports, adding that the risk to the Scottish economy would "increase dramatically" if there was no improvement in America next year.

He also estimated it would cost the Scottish Executive �140m each year to even the disparity in business rates with England.

Mr McMillan said: "We keep going back to the subject of business rates because our members are very angry about this.

"These numbers are very real. We know from representations that have been made to us that companies are desperately worried about this.

"We have seen manufacturing declining rapidly and other areas not performing so well but some sectors have exceeded expectations and that is because of growth in the public sector."

The CBI also said it was opposed to plans by the executive to launch a review on whether third parties, such as environment groups or local residents, should be able to appeal after planning approval is granted to companies by local councils.

The measure, which has been ruled out by ministers in England and Wales would slow up an already lengthy application process and discourage investors from setting up in Scotland, it claimed.