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13 April 2015, 07:05
Falling oil prices, bad winter weather and the new lower alcohol limit contributed to a dip in economic activity last month, according to a new survey.
The latest Bank of Scotland PMI report found that slight growth in manufacturing output during March was not enough to offset a fall in service business.
The financial, travel, tourism and leisure sectors were the hardest hit while activity rose at business services companies.
The picture was reversed for new business, with manufacturers recording a drop in new orders for the third month in a row as a result of lower demand in the oil and gas industry while service providers recorded modest growth.
The report said: "There were reports from panellists of a renewed confidence amongst companies and within markets in general.
"Economic conditions were reported to be better and that marketing had also bolstered growth.''
The bank's headline figure for private-sector activity dipped from 50.2 in February to 49.4, the second time in the past three surveys that a fall in output was recorded.
The figure measures month-by-month changes in output in both the manufacturing and service sectors.
Employment grew during the month, led by a rise in staff at business services companies, the bank report found.
Donald MacRae, chief economist at Bank of Scotland, said: "Manufacturing exporters have been affected by the falling euro while services businesses in hospitality are seeing a changing pattern of spending resulting from the lowered alcohol limit while driving.
"All are affected by subdued business confidence associated with the fall in the price of oil and the bad winter weather.
"But recovery is on the way with levels of new business increasing, employment rising in all sectors and the oil price up 20% from January's low.''
Deputy First Minister and Finance Secretary John Swinney said: "Whilst the Bank of Scotland's PMI indicated a slight softening in economic activity at the start of the year, it also shows some encouraging signs of improvement, with their report of prospects for new orders and employment both looking up.
"Recent labour market data has shown that employment in Scotland continued to increase as the start of the year, whilst the Bank of Scotland's Business Monitor reported that business expectations for the volume of business, turnover and exports over the next six months are positive.
"Challenges do remain for Scottish businesses, with the impact of falling oil prices on the oil and gas industry, sterling's continued strength against the euro and continued weakness in the euro area.
"However, the Fraser of Allander Institute forecasts continue to show strong growth for the Scottish economy in 2015 as a whole, highlighting potential benefits to Scotland from falling oil prices offsetting some of the challenges that also creates.''