Middle peace unrest could hit Scottish economy

Economists at the University of Strathclyde's Fraser of Allander Institute said the Scottish recovery was at risk of "faltering" in 2011 amid uncertainty in the Middle East combined with worsening inflation, continuing weakness in bank lending and one of the harshest winters in decades.

They said the global markets are vulnerable to so-called "oil shock", as rising oil prices hit the agricultural, transport, construction and chemical sectors.

The price of oil rose last week to almost 120 US dollars (74) a barrel - up by 47% since the end of the third quarter last year.

The report warned that while the economy continued to grow, the rate of recovery from the recession remained sluggish, with Scottish GDP growing by just 0.5% in the third quarter of last year.

Unemployment is also expected to rise in Scotland, reaching 8.8% or

234,000 unemployed people by the end of the year.

But the net number of jobs grew by 0.9% in 2010, and the Institute

forecast further growth of 0.9% this year.

By 2013, total employee jobs are forecast to be around 60,000 fewer than in 2007 and broadly the same as at the end of 2004.

Brian Ashcroft, professor of economics at the University of Strathclyde, said: "The economic recovery in Scotland is faltering after the initial strong bounce-back.

"2011 will be a difficult year but we do not expect the recovery to completely stall despite the slow growth of domestic household demand and the failure of exports and investment to pick up as quickly as hoped.

"It is gratifying that unemployment is falling in Scotland, but we feel that the recovery will not be strong enough for the fall to be sustained throughout the year.

"The political upheaval in the Middle East, worsening inflation, continuing weakness in bank lending and the uncertain impact of fiscal consolidation all serve to cloud the picture on future growth prospects."