On the up: Swinney hails improved economic forecast

The Fraser of Allander Institute also increased its 2014 growth forecast from 1.6% to 1.8%.

Its latest quarterly report suggests an increase of 21,200 new jobs in Scotland in 2013, rising to 27,200 in 2014, with the majority of new employment in the service sector.

The unemployment forecast has been revised down from a June forecast.

Brian Ashcroft, Emeritus Professor of Economics at the Fraser of Allander Institute, University of Strathclyde, said: "After five successive quarters of GDP growth we are now witnessing a more robust recovery.

"Jobs are being created, unemployment is falling and many people that had despaired of finding work are now re-entering the labour market.

"However, we are still predicting below trend growth next year, reflecting the continued relative weakness of domestic demand, in particular government spending and consumer expenditure, and only slowly rising growth in eurozone markets but stronger growth in the rest of UK.

Finance Secretary John Swinney welcomed the report. "This reflects the continued quarterly growth in the Scottish economy over the past year, " he said.

"These forecasts follow on from recent GDP and labour market statistics, which showed Scottish employment levels at a five-year high and the economy continuing to grow over the year."

Analysts are concerned that a recovery driven by an increase in household spending - the result of more borrowing, not rising incomes - may not be sustainable.

Household debt remains high and if income continues to fall and house prices remain flat, then it is difficult to see how the trend can continue, they said.

"Unless net exports and investment recover soon we have doubts whether the recovery can be sustained," said Professor Ashcroft.

The report said growth in production and the manufacturing sector has been stronger than the rest of the UK but weaker in the services industry.

The performance of financial services "continues to give cause for concern", since the 2008 crisis, it said.

Paul Brewer, senior partner at PricewaterhouseCoopers (PwC), sponsors of the commentary, said: "Scotland is amongst the best-performing UK regions outside London and the South East, and that is welcome.

"There is growing evidence of a return in business confidence and the private sector should take courage and invest while real growth opportunities are emerging.

"The major programme of public-sector investment in infrastructure projects is starting to deliver at scale and should continue to stimulate the construction sector and further boost jobs and confidence.

"Collectively, those measures could help drive recovery and sustain growth in the Scottish economy."

Scottish Secretary Alistair Carmichael said: "These positive forecasts are great news for Scotland and show we are on the way back to economic recovery.

"The growth underlines Scotland is doing well as part of the UK and benefiting from the steps the UK Government has taken to stabilise the economy.

"There is a great deal of work still to be done in securing jobs and maintaining this momentum, and both Scotland's governments must use their respective powers to support families and businesses."

Professor Ashcroft said that if the Grangemouth petrochemical plant had closed last week as was threatened the figures would have been vastly different.

The future of the plant and adjoining oil refinery is now secure after union members accepted a raft of changes to pay and conditions to reverse the decision by owners Ineos to shut the site.

The expert said: "It would have been devastating for the Scottish economy.

"We are forecasting growth of 1.8% next year. If Grangemouth in total had closed we estimate that the Scottish GDP would have fallen by 1.2%, so almost the whole of the growth next year would have been blown away.

"Even the petrochemical plant (closure) would have lowered GDP by 0.7%, so nearly half the growth we've forecast for next year."