UP to £3 billion could be wiped from Scotland’s economy if the UK fails to extend the Brexit transition period beyond the end of this year, a new report suggests.

The paper from the Scottish Government warns if the transition period ends as scheduled on December 31, GDP in Scotland could be reduced by between £1.1bn and £1.8bn over the next two years.

It states that would be “equivalent to a cumulative loss of economic activity of between nearly £2bn and £3bn over those two years”.

The report was published as Scotland’s Brexit Secretary Mike Russell said the country is facing a “catastrophic economic recession” as a result of the coronavirus pandemic.

He added this could “turn out to be the worst in 300 years”.

A failure to extend the transition period to allow businesses time to recover from the impact of Covid-19 could be the “final straw” for many businesses, he added.

Tory MSP Murdo Fraser branded the report and statement from the Brexit Secretary as “just another of the endless series of doleful pronouncements from the SNP Government on Brexit”.

The Conservative constitution spokesman said: “A further delay will achieve nothing but deliver years more of access to our fishing waters for the other EU nations, while our fishing communities are desperate to seize the sea of opportunity that awaits us.”

Russell said with global economies “declining fast” following Covid-19, “we must do everything we can to give businesses the best support for recovery”.

In a statement to MSPs, he argued the next two years will be crucial, saying: “Ending the EU withdrawal transition period at the end of this year would subject Scotland and the UK as a whole to an entirely unnecessary second economic and social shock on top of the Covid-19 crisis.”

He added: “More jobs would be lost, living standards would be bit and essential markets and opportunities for recovery would be damaged.

“For many businesses which manage to survive the Covid-19 crisis, this second Brexit shock would be the final straw.”

He said it is now “essential the UK indicate they will seek the extension of the transition period of up to two years which is provided for in the withdrawal agreement”.

Russell added: “To refuse to seek that extension, which the EU have indicated would be readily granted, is a reckless act which will destroy thousands of jobs, undermine an already fragile economy and devastate communities across Scotland at a time when we are most vulnerable.”

He spoke after the Scottish Government paper said the combined impact of a failure to extend the transition period along with the coronavirus crisis “could result in widespread business closures and job losses over and above those resulting from Covid-19 alone”.