Influential Scottish economic think tank the Fraser of Allander Institute has warned that the country’s economic recovery could be on a knife edge.
The Strathclyde University experts said there are signs that the strong economic growth seen in the run-up to the referendum may be starting to slow.
Evidence was apparent of slowing demand, falling real wages, rising levels of household debt, weak international trade and the prospect of further substantial fiscal austerity.
These factors raised the question of whether the Scottish economy is poised for a period of slower but sustainable growth or a recession.
The latest economic commentary from the institute, sponsored by PwC, concluded that the economy may be at a turning point or on a knife-edge.
Brian Ashcroft, Emeritus Professor of Economics at Strathclyde, said: “With signs of a slowdown appearing both at home and abroad, we fear that the recovery may soon be running on empty unless there is a new boost to demand.
“With little or no growth in real wages, rising household debt, and house price growth moderating, the drivers of consumer demand are weakening.”
With UK interest rates low, he considered now was the time for Chancellor George Osborne to invest more in Scotland to address pressing infrastructure needs.
In its first report since the Scottish independence referendum, the FoAI forecast for GDP growth was 2.7% in 2014, up from its 2.5% forecast in June due to the strong growth in the first half of the year.
It has kept its forecast at 2.2% for next year, but revised it down for 2016 to 2.1% from 2.4% because of concerns about a persistent weakness of overall demand in the economy.
Paul Brewer of PwC said: “We need policies and powers to address territorial problems and opportunities, and identifying those is one of the challenges facing the Smith Commission for example, increased freedom to borrow.”
He believed there was scope for the Chancellor in his Autumn Statement to offer the Scottish Government and local authorities more flexibility to invest in strategic infrastructure programmes to improve digital and transport connectivity, skills, productivity and the competitiveness of Scotland as a business location.
Scotland Office Minister David Mundell said the FoAI prediction confirmed the Coalition Government’s long-term economic plan is working.
He continued: “Having a shared currency and no barriers to trade with our biggest market gives Scotland a secure, solid, stable foundation for job creation and business confidence.
“We are not immune to global economic problems, and this why it is so important that we will stick to our economic plan by backing businesses and helping them to export.”
The Scottish Government said the FoAI forecast of upwards revision in expectations for Scottish growth this year was testament to the strength of the Scottish economy.
“They also warn there are still headwinds to the recovery, particularly from the lacklustre outlook in Scotland’s key export market, the eurozone, and from further substantial fiscal austerity,” a spokesman said.