RTTNews - Monday, a report from Ernst&Young's Scottish Item Club said the Scottish economy will contract 3.1% this year, stagnate next year, and expand by 1.7% in 2011.

At the same time, the firm predicts the unemployment to peak to 230,000 in 2011 from 157,000, representing a jobless rate increase to 8.5% in 2011 from 5.9% at present. Only in 2017, the Scottish ITEM Club sees a return to 2008 unemployment levels. In 2010, the firm expects the rate to hit 6.2%.

The report said the Scottish economy benefited a great deal from a decade of public spending growth, but predicted that

a decade of pain and discord is likely to follow. This would reflect in a fall in real spending on services, higher taxes and charges, and also cuts in public sector employment and conditions.

The sector to be hit the hardest would be the retail and hotel sector, followed by manufacturing. However, the finance sector is likely to survive the worst job losses in banking, as the government takes necessary steps to revive the financial system.

The Scottish ITEM Club pointed out that while there were some early signs that the Scottish economy was beginning to stabilize, like the rest of the UK, the economy was still a long way from recovery and there would be more pain in the form of significant job losses.

Dougie Adams, Economic Advisor to the Ernst & Young Scottish ITEM Club said, Scotland faces a further weakening of the labor market and a sharp rise in unemployment over the next two years, whilst the impact on jobs of the inevitable cost cutting at the banks adds to the general uncertainty.

It is going to be a lengthy rehabilitation process, even when GDP moves into positive figures, he added.

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