Economic expert: Osborne needs to step up to the plate and invest more in Scotland

Prof Ashcroft said that the International Monetary Fund (IMF) had recently called on governments to invest more in major public infrastructure work in a bid to boost economic growth.

While he said the Scottish economy had "powered ahead" in the first half of this year, he said there were now signs of a slowdown, with little growth in wages, rising levels of household debt and private investment still below its pre-recession peak.

The emeritus professor of economics made his comments as the university's Fraser of Allander Institute published its latest economic assessment.

The report, which is the think tank's first since the independence referendum in September, saw the level of economic growth forecast for 2016 revised downwards, because of concerns about a persistent weakness in demand in the economy.

Economic growth this year is expected to come in at 2.7%, the Fraser of Allander Institute said, adding this had been changed from 2.5% in its June forecast because of the strong performance in the first half of the year.

GDP growth in 2015 is expected to be 2.2%, falling to 2.1% the following year - a decrease on the previous forecast of 2.4% for 2016.

The latest figures show GDP grew by 0.9% in Scotland in the second quarter of 2014 - the same rate of growth as for the UK as a whole.

But the Fraser of Allander Institute said that the recovery had been stronger in the UK, as overall the depth of the recession was greater there.

Unemployment is now forecast to fall to 124,700 by the end of this year, with the jobless rate expected to drop to 5.3%.

While the unemployment rate is expected to fall again to 5.2% in 2015, the number of Scots who are out of work is forecast to increase to 141,019 by the end of next year, as the overall workforce increases.

The number of people who are out of work is then expected to fall again in 2016 to 135,537 by the end of the year while the unemployment rate could drop to 5%.

However, the think tank said that the labour market was still "some way from the conditions" it had enjoyed before the recession, saying: "Much of the recovery in jobs has been driven by growth of part-time and self employment.

"Full-time employment still remains considerably below its pre-recession peak, although there has been some pick-up in recent quarters."

Prof Ashcroft said: "The Scottish economy powered ahead in the first half of 2014 with GDP growing strongly, rapid job creation and falling unemployment.

"But with signs of a slowdown appearing both at home and abroad, we fear that the recovery may soon be running on empty unless there is a new boost to demand."

He added: "With little or no growth in real wages, rising household debt and house price growth moderating, the drivers of consumer demand are weakening.

"Private investment is picking up but is still below its previous pre-recession peak.

"UK interest rates are low and in view of pressing infrastructure needs, now is the time for the Chancellor to step up to the plate and invest more in Scotland.

"The IMF recently called for governments to undertake more public infrastructure investment through increased borrowing, which can stimulate present and future growth without increasing countries' public debt burden. It is time for the Chancellor to follow that lead."

Professional services firm PwC, which sponsors the economic commentary, also called for action from Mr Osborne in his forthcoming Autumn Statement.

Paul Brewer, PwC's Scottish Government and public sector leader, argued that Scotland's economic recovery was at a crossroads and, despite the UK austerity programme, there was further opportunity to stimulate growth.

He said: "There is no one-size-fits-all economic policy answer to overcoming the slowdown in growth impacting Scotland and the rest of the UK.

"We need policies and powers to address territorial problems and opportunities, and identifying those is one of the challenges facing the Smith Commission - for example, increased freedom to borrow.

"As we approach the Autumn Statement, there is scope for the Chancellor to offer the Scottish Government and local authorities more flexibility to invest in strategic infrastructure programmes aimed at improving digital and transport connectivity, skills, productivity and the competitiveness of Scotland as a business location.

"As we move forward post-referendum to create a Scotland that is confident, competitive and bold, government in Westminster and Holyrood must look to the real benefits that further decentralisation can bring to Scotland and indeed to the other nations and regions of the UK."

A Scottish Government spokeswoman said: "The latest independent forecasts from The Fraser of Allander Institute (FAI) show another upwards revision in expectations for Scottish growth in 2014, a testament to the strength of the performance in the Scottish economy.

"The FAI also sharply improved its forecasts for unemployment this year, prompted by the stronger economic outlook and by recent labour market data, which has shown Scottish unemployment continuing to fall.

"The forecasts highlight the increasingly positive picture in investment, which the FAI points out has been helped especially by inward investment.

"However, they also warn that there are still headwinds to the recovery, particularly from the lacklustre outlook in Scotland's key export market, the eurozone and from further substantial fiscal austerity from the UK Government."

Labour finance spokesman Iain Gray said the report highlighted the need to "look behind the headlines when it comes to declaring economic recovery".

He said: "Too many new jobs are low-paid, part-time and temporary. This further serves to highlight why Scots should elect a Labour government in May to deliver economic growth which works for all."