Business and consumer confidence are continuing to fall, according to the latest State of the Economy report, published by chief economist Gary Gillespie.

The report follows revelations last week that Scotland’s economy decreased in the second quarter of the year, while unemployment has drastically increased in recent months.

Derek Mackay, economy secretary, 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.”

Dr Gillespie’s report predicts a loss of investment in Scotland should uncertainty around Brexit continue into the early months of 2020. It compared the level of business investment expected without the uncertainty caused by Brexit with new forecasts of how the landscape could look if Brexit negotiations continue.

Forecasts up to April 2020 show £500 million of investment could be eradicated if uncertainty continues. Another drop of £500m is predicted in the second quarter of 2020, with subsequent quarters experiencing falls of £450m and £400m respectively.

The analysis studied the impact felt by businesses until the end of 2020, which shows almost £2bn less than forecast if there was no Brexit uncertainty.

Opposition parties at Westminster are trying to extend the deadline to leave the European Union until the end of January.

The report said: “The results show that the additional impact of this prolonged period of uncertainty is estimated to have reduced or deferred the level of business investment in Scotland by a further £500m by the start of 2020-21 than previously estimated.”

It also argued that Britain leaving the EU without a deal would pose a risk of “recession with a corresponding sharp rise in unemployment”.

Richard Leonard, Scottish Labour leader, said: “Boris Johnson’s disastrous drive towards a no-deal Brexit will damage Scotland’s and the whole of the UK’S economy.”

Willie Rennie, Scottish Liberal Democrat leader, said: “The UK government’s disastrous approach to Brexit has done enormous damage before we have even left the EU.”