The tentative recovery from recession in the Scottish economy is stalling, according to the latest Lloyds TSB Scotland Business Monitor.

This edition, for the three months ending 28 February 2010, shows 47% of firms surveyed reporting a decrease in turnover, 28% reporting static turnover and 25% reporting an increase, giving a net balance of -22% a significant fall from the previous quarter’s figure of -8% and equal to the -22% of the same quarter last year.

After four consecutive quarters of improvement, the latest Business Monitor shows a deterioration delaying Scotland’s emergence from recession. Lloyds TSB Scotland says the most likely explanation for the deterioration is the severe winter weather of early 2010.

Much of this deterioration in trading over the last three months has been experienced in the production sector, where the overall net balance for turnover was -31%, significantly lower than the -2% of the previous quarter and poorer than the -18% of the same quarter one year ago.

Service businesses also experienced a worsening in trading conditions, though not as marked as in manufacturing. Net balance for turnover was -17% compared to -11% in the previous quarter and similar to the -23% of the same quarter in the previous year. Given that the service sector has a larger share of the Scottish economy than production, this less severe fall means that overall growth in the Scottish economy may be less severely affected.

Despite the negative experience of the last quarter, expectations of increasing turnover in the next six months to the end of August have been maintained and are still positive at +2%, equaling the figure for the last quarter and distinctly up on the -28% of the same quarter one year ago. Expectations of increasing turnover are higher in service businesses with a net balance of +7% compared to the negative balance of -6% for production businesses.

Expectations for an increase in export activity are high, with a net balance of +15% of businesses anticipating an increase in export levels. Even production businesses who have experienced a poor quarter continue to have positive export expectations with a net balance of +15% comparable to service businesses at +14%. This is the most positive result in an otherwise downbeat Business Monitor. Realising these expectations for a rise in export activity is crucial to the Scottish economy returning to growth.

Despite the experience of the last quarter of declining turnover, all firms rated the importance of weakening demand as declining. This provides further evidence that the experience of the last quarter was weather induced and will not persist throughout 2010, Lloyds TSB claims.

Assessed demand has improved over the last year. This is consistent with the positive expectations for the next six months but also indicates a weak rather than a vigorous recovery, Lloyds TSB says.

Professor Donald MacRae, chief economist, Lloyds Banking Group Scotland said: “In 2008