THE manufacturing sector is driving an economic renaissance in the region, according to a report.

Business confidence is high and growth of new business was at its sharpest for 20 months, The Royal Bank of Scotland reported.

Its latest Purchasing Managers Index business survey found the region's economic recovery had become "more established".

But the bad news for the region was that, although it maintained a significant rate of growth, the North-East economy is not expanding as rapidly as the UK overall. Only one other region recorded weaker growth than the North-East in December.

Jeff Fryer, director of mid corporate banking in the North-East, said: "Confidence in the local marketplace is high, as we begin 2004, amongst many market sectors.

"The property market in the North-East is holding its own at present, and many manufacturers and owner occupiers are in the process of extending their premises around the region."

Lucy O'Carroll, head of UK macroeconomics at The Royal Bank of Scotland, said: "The December PMI North-East report showed that the region's economic recovery has become more established. The expansion of activity picked up from November, supported by the sharpest growth of new business in 20 months."

The headline business activity index, 54.8 against an average of 50, suggested the regional economy continued to grow at a significant, and slightly accelerated, pace.

Firms taking part in the survey attributed the latest increase in activity to a stronger sales performance, along with another significant rise in new order volumes. Demand for private sector firms based in the North-East continued to improve.

A number of firms in the region said they had made increased efforts to stay competitive in order to make the most of the rise in demand.

The latest expansion of activity was also reflected in the jobs market, with private sector employment rising.