Just before Christmas the latest estimates of GDP growth in Scotland, covering the 3rd quarter of 2018, were released by the Scottish Government.
These data showed that growth in Scotland in Q3 was 0.3%, half the rate of the UK over the same period.
This represented a slowing of growth in Scotland relative to the previous quarter (in which growth was 0.5%).
Our latest nowcast for the Scottish economy covers the final quarter of 2018, and these suggest that growth in 2018 Q4 was 0.36% which, at an annual rate, is 1.46%. This is broadly in line with growth in the previous quarter.
The shape of economic growth in the UK and Scotland in the first three months of 2019 will of course be shaped by preparations and the resolution of the current uncertainty around Brexit. Nevertheless, we will provide an initial update in early February with our model predictions for growth in Q1 2019.
Our new nowcast – the last one of this year – provides updated estimates of GDP growth in Scotland.
- Our nowcast for GVA growth in 2018 Q3 is 0.35% which, at an annual rate, is 1.42%
- Our nowcast for GVA growth in 2018 Q4 is 0.39 which, at an annual rate, is 1.57%
These represent slight downward revisions to our estimates for 2018 Q3 and Q4 released last month.
We will learn the first official estimate of growth in Q3 of 2018 on the 19th of December 2018. Our current nowcast (0.35%) suggests we will see a reduction in the growth rate relative to Q2’s official measure of growth (0.5%).
Since our November nowcast we have had new data on a number of key indicators.
While the Scottish labour market continues to record impressive headline statistics on employment (at 75% not far off its record high) and unemployment (at 3.8% at its joint-record low), wage growth is weak and barely above inflation.
Consumer confidence in November took a sharp dip from -17 in October, to -29, suggesting that consumers are increasingly pessimistic about the economic outlook. Relatedly perhaps, recent data on retail sales growth in Scotland showed growth was weak, and weaker than in the UK as a whole.
Balancing this out, and despite heightened economic policy uncertainty, Royal Bank of Scotland PMI recorded 53.4 in November, indicating solid expansion in activity, above the figure for the UK as a whole. This suggests that firms are continuing in ‘business as usual’ mode. Thus activity appears to be being maintained, but this does not appear to be being translated into improvements in wages and consumption.
With the highly uncertain political climate, our monthly nowcasts will continue to incorporate the latest indicators to produce timely estimates of growth. We intend that these can provide clear signals about the economic situation in Scotland, well in advance of official statistics.
Labour Market data released later this morning will provide an update on how the Scottish labour market performed over the three months to the end of September.
In general the labour market has provided good news in recent years, with near record low unemployment and near record high employment. In contrast, economic growth has been weaker.
Recently it appears that growth may be beginning to pick up.
The Scottish Government estimated that the economy grew by 0.5% in 2018 Q2, slightly higher than in the UK as a whole.
Last week we learned that the UK economy had a strong Q3, growing at 0.6%.
While official estimates of growth in Scotland in Q3 will not be released until 19th December, our nowcasting model can provide some early insight into growth in Scotland in Q3 and indeed Q4.
Our model suggests that:
- GVA growth in 2018 Q4 is 0.42% which, at an annual rate, is 1.68%
- GVA growth in 2018 Q3 was 0.39% which, at an annual rate, is 1.57%
While these estimates suggest weaker growth than in 2018 Q2, our nowcasts for 2018 Q2 were also weaker (averaging around 0.3%) than the official estimate from the Scottish Government.
Next month’s nowcast will reflect the inclusion of the first survey data for 2018 Q4 in our model, and we will see what that does to our estimates!
Recent economic news on the Scottish economy has struck a slightly more upbeat note about the current pace of economic growth.
This comes on the back of growth over the year to June 2018 – whilst still below average – at its fastest since late 2014/early 2015 and the Scottish economy outpacing the UK for the last two quarters.
While, as set out in our latest Fraser Economic Commentary we remain cautiously optimistic, growth is likely to remain below trend for the duration of our forecast horizon. And overall, the immediate outlook for Scotland’s economy remains highly uncertain.
Against this backdrop, the latest nowcasts of economic growth in Scotland from our nowcasting model have been generated.
Our nowcasting model combines the latest data on a range of indicators, including official data such as unemployment, alongside a range of ‘soft’ indicators of activity like consumer confidence indicators and our own business surveys.
This month the model estimates growth in 2018 Q3 of 0.40%, which, at an annual rate, is 1.61%.
While still below trend, this estimate suggests that growth in Q3 is continuing to tick back up after a couple of years of weak growth.
Survey evidence showing that the outcome of the ongoing Brexit negotiations weighs heavily on businesses. While the recent rise in economic growth is to be welcomed, this incremental improvement could be easily undermined by a failure to agree a Brexit deal.