February Nowcasts

As usual for the start of the month, we release the results from our nowcasting model of the Scottish economy.

Since our last update, we have received data on the performance of the Scottish economy in Q3 of 2016, indicating growth of 0.2%.

These data suggest the continuation two worrying trends, firstly Scotland lagging behind growth in the rest of the UK, and secondly, Scotland underperforming relative to its own long term trend rate of growth. We commented in greater detail on these issues here.

This month, our model estimates:

  • GVA growth in 20164 of 0.38% which, at an annual rate, is 1.51% (this is down ever so from our last release)
  • GVA growth in 2017 Q1 is 0.40% which, at an annual rate, is 1.59%. This is our first nowcast for 2017 Q1, and is based only on data to 2016 Q4.

We also received revised official data for Q2 2016 this month.

Initially, the official data put growth in Q2 of 2016 at 0.4%. This was a surprise, as we noted at the time. The reason being that our ‘central’ nowcast estimate suggested growth of less than 0.3%, plus we were expecting an negative impact on GDP growth from the closure of the Longannet power station- which given their one-off nature wouldn’t be captured in our model.

These revisions to Q2 GDP growth rate, now put growth much lower at 0.2%. With the one off impact of the closure of Longannet in Q2, this might not be too concerning, however it comes in a sequence of very low, or no, growth quarters for the Scottish economy.

More generally, we discussed the outlook for the Scottish economy in some detail in the last Fraser of Allander Economic Commentary, see the summary here. Suffice to say substantial challenges remain.

Key labour market indicators continue to be stronger than one might expect given the muted growth Scotland has experienced since 2015, although concern remains about rises in inactivity. However, with inflation set to increase through 2017 there are signs of worsening consumer confidence. Any weakening in household demand will pose a further challenge to a fragile Scottish economy through 2017.

January nowcasts

Happy New Year!

We start 2017 with a new update from our nowcasting model for Scotland. These nowcasts relate to the last two quarters of 2016, a year which has offered plenty of economic challenges for the Scottish economy.

We will receive official estimates of Scottish GVA for 2016 Q3 next week. For the moment, our model produces the following estimates:

  • Our nowcast for GVA growth in 2016 Q3  is 0.32% which, at an annual rate, is 1.29% (essentially unchanged from our last nowcast update).
  • Our nowcast for GVA growth in 2016 Q4 is 0.38% which, at an annual rate, is 1.53% (this is very, very slightly up on our last nowcast update).

Data published next week will be the first official figures on economic activity in Scotland in the immediate period after the Brexit vote. 

For comparison purposes, growth for the UK as a whole in the third quarter was recently revised up to 0.6%, partly on the back of stronger than expected consumer expenditure growth.

Note, the current data show that Q1 growth in Scotland was 0.0%, and in Q2 was above expectations, coming in at 0.4%.

December nowcasts released!

As usual at the start of the month we update our latest nowcasts of the economic growth performance of the Scottish economy.

These nowcasts aim to give a more timely indicator of current economic performance than official statistics which are produced with a considerable lag.

In estimating our nowcasts we make use of a wide variety of different data sources, including the latest business surveys and information on Scotland’s labour market.

Our model produces the following estimates for the third (Jul-Sept) and fourth (Oct-Dec) quarters of 2016:

  • Our latest nowcast for GVA growth in 2016 Q3 is 0.32% which, at an annual rate, is 1.28%.
  • Our first nowcast for GVA growth in 2016 Q4 is 0.37% which, at an annual rate, is 1.50%.

Our results continue to be consistent between Q3 and Q4, but our Q3 estimate has been revised down (again) very slightly from last month. This month’s estimates are the 5th nowcast estimates for Q3.

For the 4th quarter of 2016, this month’s nowcasts, given delays in the release of data, are the first to include data related to Q4 itself. These data were released during November and relate to activity in October. We can see that this has had little effect on our Q4 nowcasts from last month (the very small differences, when rounded to two decimal places, increase the annualised estimate very slightly).

There have been some encouraging signs about the performance of the UK economy in 2016, most obviously the surprisingly strong growth of 0.5% in Q3. The OBR have forecast growth of 2.1% in 2016 (up by 0.1% from their March forecast) while lowering their forecasts for 2017 and 2018.

In Scotland, there remain some mixed signs about the performance of the Scottish economy – although it is certainly the case that the outlook, whilst remaining challenging and uncertain, is slightly more positive than during the summer.

Our latest Fraser of Allander Institute Economic Commentary will be published next Tuesday and will discuss these trends and more.

For now, a few summary points are worth making.

  1. The new FAI/SCER Scottish Labour Market Trends report provides some reason to be cautious about improvements in headline unemployment numbers as indicating an improvement in the health of the Scottish economy.
  1. The FAI Autumn Statement briefing showed that the Scottish Government budget is increasing very marginally in real terms next year, although it is worth reiterating that this real terms increase in the budget is only for next year. However, it does mean that at least there is not a further hit to Scottish Government demand.
  1. The 25th Oil and Gas survey, produced this week by the FAI in partnership with Aberdeen and Grampian Chamber of Commerce, showed that more contractors have reduced both their permanent and contract staff than at any other point in the history of the survey, many firms felt that the rate of job cuts is likely to slow in the coming year.
  1. Our nowcasts suggests that in the third quarter of 2016 the Scottish economy grew more slowly than the UK as a whole, continuing the recent pattern.

The FAI Commentary released later this month will consider all of these issues in more detail.

November nowcasts

As usual at the start of the month we update our latest nowcasts of the economic performance of Scottish economy.

Our model produced the following estimates for the third (Jul-Sept) and fourth (Oct-Dec) quarters of 2016:

  •  Our latest nowcast for GVA growth in 2016 Q3 is 0.37% which, at an annual rate, is 1.48%.
  • Our first nowcast for GVA growth in 2016 Q4 is 0.37% which, at an annual rate, is 1.47%.

This month’s results are broadly consistent between Q3 and Q4, but our Q3 estimate has been revised down very slightly from last month. This month’s estimates are the 4th estimates for Q3. At the outset of this project, our model testing indicated that the fourth nowcast was the most accurate, so this estimate can be considered our ‘best guess’ about the performance of the Scottish economy in 2016 Q3. Note, we do not yet have data for the first month of the final quarter of 2016, these will be included in our next nowcast.

The recently released data from the Scottish Government for 2016 Q2 surprised on the upside, with growth of 0.4% (0.35%, unrounded). These were in line with our nowcasts for 2016 Q2. Nevertheless, with the closure of the Longannet coal-fired power plant at the end of Q1, we were expecting a reduction of up to 0.4% in GDP growth. As it turned out, the reduction in GVA growth as a result of Longannet closing was estimated at 0.2% by Scottish Government statisticians. As we noted at the time, this was a one-off event and will have no consequence on Scottish growth in future quarters.

The first estimate of UK growth in the third quarter of 2016 in the UK economy came in above expectations at 0.5%, albeit slightly down from the growth (+0.7%) seen in the second quarter. The final estimate of Q3’s growth for the UK will be revised, either up or down, as new data become available but it is worth noting that the stronger than expected overall growth did mask a contraction in the manufacturing sector, and the sharpest quarterly decline in construction output since 2012.

Bringing this all together, our nowcast for Q3 and the initial estimate of UK growth in this quarter suggests that the Scottish economy is continuing to grow more slowly than the UK economy. As noted elsewhere (see the FAI publication “Scotland’s Budget”) with the link between relative economic performance and the size of the block grant adjustment, this is a cause for ongoing concern.