The problems being faced by manufacturers in Scotland mean the economy as a whole will suffer slow growth over the next two years, a think tank has warned.

The manufacturing recession has forced experts at the Fraser of Allander Institute, based at Glasgow's Strathclyde University, to revise downwards their economic forecasts.

The think tank's latest quarterly bulletin predicts the Scottish economy will grow by just 0.9% this year - down from the 1.2% growth forecast in its last report.

Figures for 2003 and 2004 are also lower than previously forecast at 1.3% and 1.4% respectively.

The service sector offers the economy some hope

The latest report reveals that more than a fifth (20.2%) of Scotland's manufacturing output was lost during 2001, wiping out the previous five years' growth and outstripping the UK's overall loss of 8.1%.

The sharp decline was reflected in a string of redundancies in "Silicon Glen" high-tech industries.

Mobile phone firm Motorola made more than 3,000 of its workforce redundant when it closed its factory at Bathgate, West Lothian, while computer giant Compaq cut 700 staff at Erskine and NEC lost 600 people in Livingston.

The think tank said there would be some relief provided by the service sector in Scotland, where it has been growing at a faster rate than the rest of the UK.

Unemployment peak

The sector as a whole grew by 4.4% in 2001 compared to 3.8% for the UK overall, with business and finance services gaining 9.8% and 6.3% respectively.

The Fraser of Allander experts said the manufacturing slump was likely to have a knock-on effect on service industries and forecast slower growth for the next two years.

It predicted a 2.5% drop in manufacturing in 2002 - worse than March's forecast of 2% - with the service sector growing by a more modest 2.1%.

Unemployment is expected to reach its peak this year at 6.6% on the UK Government�s preferred International Labour Organisation figures, before easing back to 6.5% next year and 6.3% in 2004.