'More pain' and job cuts for Scottish economy

The Scottish economy will continue to lag the rest of the UK and shed tens of thousands of public sector jobs, an economic think tank has warned.

The Ernst & Young Scottish Item Club has predicted growth of 0.8%, 0.2% lower than the UK estimate.

The forecaster said the "dismal" state of exports places Scotland at a disadvantage when it comes to recovery.

It also said 30,000 public sector job cuts in the next four years would hamper economic performance.

According to the report, the volume of Scottish manufactured exports has fallen by 30% in the past decade.

The latest export figures showed that only overseas sales of food and drink rose last year, with all other sectors in decline.

Exports now account for about 20% of Scotland's GDP, compared with about 30% for the rest of the UK.

The Item Club said this made it more difficult for Scotland to capitalise on an export-led recovery and the country's manufacturers and business services would have to show they had "fire power" to take advantage of weak sterling and increase overseas sales.

The looming cuts in the public sector could also damage Scotland's chances of an economic recovery, according to the report.

The public sector plays a larger part in the Scottish economy, contributing more than 30% to GDP growth over the past 10 years, compared with 20% in the rest of the UK.

Dougie Adams, senior adviser to the Ernst & Young Scottish Item Club, said: "A decline or slow-down in public sector output will significantly hamper Scotland's economic performance over the next few years."

However, although the report is predicting that 30,000 jobs will be lost in the public sector over the next four years, it said overall unemployment would peak at 225,000 this year before dropping back in 2011.

The Item Club which uses the same model of the UK economy as the Treasury, concluded that Scotland would continue to lag the UK for some time.

Mr Adams added: "Scotland has some structural challenges to overcome and any ambitions of matching the growth rate of the rest of the UK are more of a long-term ambition than a short to medium reality."

A spokesman for Finance Secretary John Swinney said: "It is vital that we maintain investment in Scotland's economy and frontline public services to aid economic recovery.

"The SNP government is already dealing with a £500m cut by Westminster in this year's budget, and we are planning to defer further cuts being imposed upon us until the following year so that we can protect economic recovery."

Scottish Labour's finance spokesman Andy Kerr blamed the SNP's "lack of action" to boost the export market.

He said: "It is clear that [First Minister Alex] Salmond and the rest of his ministerial team have run out of ideas to get Scotland's economy back on track and their incompetence is costing Scotland jobs."