THE Scottish economy is on the road to recovery and at no risk of lapsing into a double-dip recession, the chief economist to the Scottish Government said.

However, Dr Gary Gillespie said the country is not yet enjoying the kind of sustained recovery that is needed to reduce unemployment and warned the labour market will remain a key challenge for ministers.

Presenting the government's latest State of the Economy report, Mr Gillespie said the prospects for the economy appeared to be much brighter than when the last report was prepared in November.

Mr Gillespie appears confident the actions taken recently to address the problems in the eurozone have reduced the risk of the grouping plunging into the kind of crisis that could spread to other countries. The eurozone is a key export market for Scotland.

"Compared to where we were at the last State of the Economy report there was much more uncertainty," Mr Gillespie said.

"We have seen the actions from the European Central Bank and what they are doing. I think it is a more certain outlook."

Asked whether he feared Scotland could fall back into recession, Mr Gillespie said: "I don't see that as a risk at the moment at all."

In the report, Mr Gillespie predicts Scottish growth will remain subdued at least until halfway through 2012 but will pick up after that.

Exporters should contribute to growth, after performing reasonably well recently.

Mr Gillespie thinks Scottish consumers will help by increasing spending later this year, when the inflation rate is expected to slow.

"I think there is a story around a more confident household sector which will drive the economy," he said.

This should help counterbalance the effect of cuts in public spending.

Finance Secretary John Swinney said the Scottish Government is helping to boost consumer confidence by continuing the council tax freeze and investment in capital projects.

However, Mr Gillespie noted: "We're not in the

throes of a sustained recovery yet."

The report warns: "The labour market will remain a key challenge. With output growth forecast to remain relatively subdued, a sustained improvement in employment will be dependent upon securing a sustainable recovery in confidence and output."

Last week the respected Fraser of Allander Institute forecast that around one in 10 people in Scotland would be unemployed on one measure by the end of this year.

Headwinds to growth include problems accessing financing experienced by small and medium sized enterprises, which Mr Gillespie described as being crucial in driving employment, innovation and competitiveness.

Asked if the uncertainty regarding the outcome of the referendum on Scotland becoming independent set for 2014 is weighing on sentiment, he said: "The evidence we've looked at in this it just doesn't feature. The uncertainty's to do with the global economy to do with getting investment levels back up and driving forward."

The Scottish Government will publish gross domestic product figures for the fourth quarter of 2011 next month. It does not produce a forecast for the annual rate of economic growth.