Scotland's economy is on the brink of recession and will take a "sharp turn for the worse" if the Brexit negotiations go badly, according to a new report from the country's leading economic research experts.
The report from the Fraser of Allander Institute, based at the University of Strathclyde, shows that the Scottish economy shrank in the final three months of 2016 and it's "highly possible" the trend could continue for the next quarter, which would mean Scotland has officially entered a recession.
The institute said the poor figures "can no longer be explained solely by the downturn in the oil and gas industry" and instead were confirmation that the country's economy has flatlined for two years and is "stuck in a cycle of low growth, weak investment, and fragile confidence".
The report goes on to say that, given the UK economy as whole continued to grow quite sharply in 2016 while Scotland's economy shrank – as shown by the comparative graph below – Scotland's downturn also cannot be blamed on last year's vote to leave the European Union.
While the report forecasts that Scotland's economy will grow over 2017, whether or not the next set of quarterly economic figures show that the country has entered a recession will be a "close-run thing".
"Whether or not Scotland formally enters recession when the next set of data are released is in the balance," according to the report. "We believe that the Scottish economy will still grow over the year as a whole (and more quickly than last year) but further negative quarters of growth are highly possible."
Graeme Roy, the director of the Fraser of Allander Institute, said: "The Scottish economy continues to lag behind the UK as a whole, with the scale of the gap growing rather than narrowing. On balance, our forecast is that growth will return in 2017, with tentative signs of a more positive outlook for Scotland’s oil and gas sector and improving order books across Scottish businesses."
However, Roy added: "Should the upcoming Brexit negotiations go badly, or the UK economy slows down more quickly than anticipated, then Scotland’s economic prospects could take a sharp turn for the worse."
The Scottish Conservatives and Labour blamed the poor performance of Scotland's economy on "complacency" on the Scottish government's part, and distraction caused by Nicola Sturgeon's drive towards a second independence referendum.
The shadow economy secretary for the Scottish Conservatives, Dean Lockhart, said the report shows Scotland's economy "continues to badly underperform thanks to this SNP government" and the prospect of a recession now "hangs in the balance".
"The rest of the UK powers ahead, so the SNP can’t possibly blame Brexit," said Lockhart. "This is on the Scottish government’s shoulders, and it has to explain what it's going to do to kick-start the economy it is in charge of. Make no mistake, Scotland has great potential, but that potential has been utterly neglected by an SNP government which has its priorities focused elsewhere."
Labour’s economy spokesperson Jackie Baillie said Scotland was "teetering on the brink of recession" because the SNP government has been "more interested in running a campaign for a second independence referendum than running a government".
Baillie added: "Every time difficult figures for our economy are announced SNP ministers claim the fundamentals of our economy are strong – ministers must take their heads out of the sand and stop being complacent."
SNP MSP Stewart Stevenson said the report was "just the latest warning that a bad Brexit deal could have devastating consequences for our economy" and added that the Scottish government would be "fighting tooth and nail to protect our single market membership".
"The Tories put their plan for a hard Brexit to the public and lost their majority," said Stevenson. "It would be a grave mistake for Theresa May to push on with her disastrous plans to leave the single market – and it could cost tens of thousands of jobs in Scotland."