The economy grew at its fastest rate since the recession in 2013 and is in the "strongest position" of recent years, a new report by the Scottish Government's chief economist shows.

The latest State of the Economy paper from Dr Gary Gillespie said economic recovery is "increasingly embedded, with almost two years of unbroken quarterly growth recorded at the end of 2013". Economic output in Scotland is expected to exceed its pre-recession peak in the first half of this year, according to the study. But it said the economic crisis would "continue to have an impact for a considerable time to come", and warned there are still challenges ahead. A balanced recovery is "yet to fully take hold", the report said, as it argued there would need to be an improvement in wages and household incomes for the current economic performance to be sustained.

In addition, "challenging" conditions in Europe and other areas could impact on Scotland. However the report stated: "We should begin to see a strengthening in real wages through 2014 which along with the forecast acceleration in growth, puts the economy in the strongest position it has recorded in recent years."

Finance Secretary John Swinney said Scotland had "turned a corner", but also stressed "significant challenges still remain as businesses continue to respond to changing market conditions and a challenging external environment, particularly in our key export market of Europe".

A Scotland Office spokesman said: "We welcome the confirmation from the Scottish Government's chief economist that the economic recovery in Scotland is becoming more embedded as part of the UK."