Scots economy 'should still grow'

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The economy in Scotland should continue to expand this year despite "economic headwinds", an expert has said.

Martin Ellis, chief economist at the Bank of Scotland, said that the economy was expected to grow through 2008 and into the start of 2009.

But he added this would be at a "rate which is below the long-run trend".

Demand for staff has risen at a slower pace and while the housing market was experiencing a "significant downturn", it should outperform the UK, he said.

Mr Ellis spoke as the bank published its index of leading economic indicators.

"Despite facing substantial economic headwinds, the Scottish economy is expected to continue to expand through 2008 into early 2009, albeit at a rate that is below the long-run trend," he said.

This forecast must not be met with complacency Jeremy PurvisLib Dem finance spokesman

"Although retail sales have shown some signs of weakness, labour market conditions in Scotland remain relatively firm, despite softening in recent months.

"The Scottish housing market is expected to outperform the UK for the fifth successive year but it is not immune to the same pressures facing the overall UK market and is experiencing a significant downturn."

The Bank of Scotland's labour market barometer for August showed that despite increasing for the 66th successive month, demand for staff rose at the slowest pace since June 2003.

Scottish industrial production had an annual growth rate of 0.5% in the first quarter of this year, the figures showed - which is the first increase on a year-on-year basis for five quarters.

'Significant slowdown'

Business optimism in Scotland dropped during the third quarter of 2008 and the latest CBI business survey showed that 58% of companies were working below capacity, compared to 44% at the same point last year.

In addition the number of new cars registered fell by 21.4% in July, compared with the same month last year.

The Lib Dems finance spokesman, Jeremy Purvis MSP, said: "This forecast must not be met with complacency.

"It shows a very marked fall in new housing starts, the majority of businesses are operating under capacity and there is a 50% drop in business confidence.

"These are the strongest indicators yet that we are on the cusp of a very significant slowdown in key sectors of the Scottish economy."

He called on the Scottish Government "to respond proactively".