The report, published by Scotland's Chief Economist Gary Gillespie, says the ongoing uncertainty has meant businesses are concentrating on short term steps to mitigate against an EU exit, rather than investing in growth or productivity.
The report highlights:
• output growth contracted in the second quarter of the year reflecting the unwinding of stocks built up in advance of the original March Brexit deadline
• Scotland's labour market continues to perform strongly by historical standards, however unemployment has increased in recent months
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• prolonged Brexit uncertainty continues to impact business investment in Scotland, posing a significant risk for future output growth and productivity
• consumer and business sentiment remains weak in Scotland with households concerned about the economic outlook
• the Scottish economy is generally forecast to grow at a slower pace in 2019 (assuming a smooth Brexit transition)
• 'no deal' Brexit remains a live risk which could push the Scottish economy into recession in 2020
Commenting on the report, Economy Secretary Derek Mackay said: "Following the publication of GDP figures this week, this report is another warning of the worrying impact that Brexit uncertainty is already having on the Scottish economy and the risks it presents for the future.
"There is no doubt that any form of Brexit will damage our economy and a 'no deal' would be disastrous for Scotland and could push the country into recession. A 'no deal' Brexit is completely unnecessary but seems to be the outcome the UK Government is now actively pursuing.
"The Scottish Government has been clear and consistent that the best option for the future wellbeing and prosperity of Scotland is to stay in the European Union.
"We are already taking steps to protect jobs and our economy from Brexit but not every impact can be mitigated. We will continue to stand firm against efforts to take us out of the EU against our will."
(MH/JG)
