Scottish economy set for further pain as recovery lags behind rest of the UK

ERNST &amp; YOUNG&rsquo;S Item Club says the Scottish economy is set for a tough future as it continues to lag behind the rest of the UK.<br /><br />Job losses are predicted for at least the next two years, and unemployment is expected to reach eight per cent. <br /><br />Scottish financial services companies might have to cut around 3,000 jobs in restructuring, after 4,300 jobs went in the 15 months to June.<br /><br />The Item Club, which uses the same economic model as the Treasury, predicts the Scottish economy will contract by 4.9 per cent this year and grow 0.7 per cent in 2010, whereas the rest of the UK is forecast to contract 4.6 per cent and then grow 1.1 per cent next year.<br /><br />&ldquo;There is undoubtedly more pain to come,&rdquo; said Dougie Adams, Item Club senior adviser. &ldquo;Recent announcements by the banks suggest that the process of rationalisation is yet to get into full swing.<br /><br />&ldquo;The recession has exposed a number of areas where there are disturbing weaknesses, not least financial services, business services and the hotel and catering sectors, which have all significantly underperformed compared to the rest of the UK.&rdquo;<br /><br />The report highlighted exports as the key to economic growth, but warned that changing the structure of the economy to be more export-led would require a slow adjustment and couldn&rsquo;t happen quickly.