Scotland’s economy is in a “precarious position” with a recession “in the balance”, experts have warned.
A report from the Fraser of Allander Institute said Scotland seemed to be “stuck in a cycle of weak growth”.
The Strathclyde University think-tank said that while growth is forecast to pick up in coming years, it is “likely to continue to lag behind the UK”.
Ministers insist that the fundamentals of the Scottish economy remain strong, highlighting Brexit as a key challenge.
Figures are due out at the start of July which will confirm whether or not the Scottish economy has formally gone into recession – defined as two consecutive quarters of falling output.
The Fraser of Allander Institute report said that “on balance it is likely to be a close run thing”.
It forecast growth at 1.2% for 2017 as a whole, 1.4% for 2018 and 1.6% for 2019.
The analysis includes some positive news – an apparent pick-up in business activity, unemployment at a record low and sectors like food and drink and tourism benefiting from the low value of the pound.
However, it also voices “increasing concern” about the slowdown apparently spreading across a wider set of industrial sectors.
It said political factors like Brexit “cast a shadow over the outlook”, but said that this and the downturn in the oil and gas sector could not be solely to blame. The report said that “Scotland’s economy seems to be stuck in a cycle of weak growth, declining confidence and poor investment and net export figures”.
Fraser of Allander director Graeme Roy said the scale of the gap between the Scottish economy and that of the UK as a whole was growing.
He said: “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.
“In the current climate sentiment can change quickly. 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.
“That being said, a number of sectors should post relatively healthy returns this year. In particular, Scotland’s food and drink and tourism sectors should benefit from the low value of Sterling.
Economy Secretary Keith Brown said there was good news in the report, highlighting projected growth in the financial and business services, tourism and food and drink sectors.
He said: “This comes after good news for Scottish jobs. Scotland’s unemployment rate is at record low levels of 4% – equalling the previous all-time low – and is also at its lowest rate since the recession, and much lower than Fraser of Allander’s post-Brexit forecast of 7% for this year.
“And while challenges remain, the report also confirms emerging signs of confidence returning to the oil and gas sector, building on recent reports from Bank of Scotland and Aberdeen and Grampian Chamber of Commerce.
“While these signs are encouraging, we must be clear that the biggest threat to Scotland’s economy continues to be Brexit – as this report makes clear.
“To avert the ‘Brexit negotiations going badly’, as the report states, the UK government must work with us and the other devolved administrations with the aim of keeping the UK and Scotland in the single market and customs union.”
Opposition leaders said the report showed the Scottish government must do more to support the economy.
Scottish Conservative economy spokesman Dean Lockhart said: ‘”As this report states, whether or not Scotland officially enters recession hangs in the balance. And that’s while the rest of the UK powers ahead, so the SNP can’t possibly blame Brexit.
“This is on the Scottish government’s shoulders, and it has to explain what it is 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 spokeswoman Jackie Baillie said Scotland was “teetering on the brink of recession because Nicola Sturgeon has been more interested in running a campaign for a second independence referendum than running a government”.
She 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.
“With the new powers of the Scottish Parliament and the budget for public services more dependent on Scottish tax revenues than previously, we need a government with a laser focus on growing the economy and creating jobs.”