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Danger of false dawn for economy

24 June 09 10:20 GMT

Scotland will take longer to recover from the recession than the rest of the UK, according to the economic think tank, the Fraser of Allander Institute.

The institute said it believed the recession had bottomed out but said the timing of the recovery was unclear.

In its report, it said Scotland's reliance on the service sector made it more likely to suffer from falling consumer spending.

The institute predicted a fall in growth for the next few years.

Its most benign scenario showed growth falling by nearly 3% this year and almost 1% next year, before starting to grow in 2011.

It also predicted unemployment peaking at 212,000 next year.

Analysis of changes in the economy over the past decade has revealed that as manufacturing has fallen, Scotland has become more reliant on the service sector.

With households reducing debt and raising savings, the report said that consumer demand would remain weak.

Companies were facing similar problems and were running down debt and cutting back significantly on investment.

These factors made it likely that Scotland's recovery from the recession would be slow and protracted.

Export hopes

The path to growth will be challenging, according to the academics behind the report.

They have said Scotland's economy will need to become more export and private sector orientated over the medium and long term.

Scotland will also need to attract more inward investment if it is to increase the number of exports to achieve higher growth.

The report said the issue of how to attract foreign investment should be a key topic of public debate over the next few years.

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