February Nowcast Update

This week we received new data on UK GDP growth in Q4, which came in at a disappointing 0.0%.

Some of this was clearly due to Brexit uncertainty, but there are clearly other factors on the go this time around. For example, rather than rising significantly as per the previous pre-Brexit deadline in March 2019, manufacturing activity fell tipping that sector into recession. Continuing a consistent trend in recent years, business investment was weak once again, falling by 1% in the final quarter of the year.

Weaker global growth and a relatively fragile period for consumer confidence appear to be just as important explanations as any Brexit-induced uncertainty.

On the plus side, we also received updated estimates of UK GDP growth for 2019 Q3 which has now been revised upward slightly to 0.5%.

In terms of the Scottish outlook, the FAI early indicators of the health of the Scottish economy, like the Addleshaw Goddard Scottish Business Monitor, suggest that there was a slight uptick in confidence among Scottish businesses towards the end of last year. Nevertheless, the FAI Business Activity Index, a measure of Scottish business activity, remains unchanged since the last quarter (5%), just below the three-year average (8%).

Given the sluggishness of UK growth, and the relative weakness of Scottish growth relative to UK growth over the past while, all signs point to another weak quarter of growth in Scotland in Q4.

We’ll have to wait until 18 March for official estimates of Scottish Growth for 2019 Q4, but in the interim our latest nowcasts of the Scottish economy suggest that growth in the Scottish economy in:

  • 2019 Q4 is 0.26% which, at an annual rate, is 1.03%
  • 2020 Q1 is 0.27% which, at an annual rate, is 1.08%

It should be noted that these estimates are based upon past trends – and deviations from these trends – and do not capture one-off or ‘political’ events such as Brexit. With this in mind, particularly in light of yesterday’s UK GDP, on balance we think whilst the Scottish economy did continue to grow in the final three months of 2019, this growth was very weak (and will be close to zero).

We’ll provide a new update, based on updated data, at the beginning of March ahead of the official estimates later in that month.

December Scottish economy nowcasts…

With official estimates of GDP growth in Scotland in Q3 2019 due to be released later this month, we’ve updated our nowcasts for the Scottish economy for Q3 and Q4 2019.

These estimates put growth in Scotland:

  • For 2019 Q3 growth at 0.21% which, at an annual rate, is 0.83%
  • For 2019 Q4 GVA  growth is 0.25% which, at an annual rate, is 0.99%

These estimates represent similar estimates to those released last month – and a continuation of the sustained period of weak growth experienced through much of the past few years.

In the last set of official estimates of growth in Scotland, growth in the year to Q2 was 0.6%, included in this estimate was the contraction in GDP in Q2 itself.

The positive growth estimate for Q3 implies that Scotland will not enter recession in 2019.

Taking our estimates for Q3 and Q4 (above) together with the official estimates for 2019 Q1 and Q2, implies economic growth in Scotland of 0.7% between 2019 Q4 and 2018 Q4, or on a 4 quarter on 4 quarter basis, growth is estimated to be 0.8% in 2019.

November nowcast update…

We’ve run our nowcasting model for the Scottish economy again this month, and produced estimates for growth in Q3 and Q4 of 2019.

These estimates use all of the data currently available on a range of hard and soft indicators, including business surveys, labour market statistics, etc.

The latest model estimates are:

  • growth in 2019 Q3 of 0.19% which, at an annual rate, is 0.75%
  • growth in 2019 Q4 of 0.26 which, at an annual rate, is 1.05%

These are the weakest growth estimates that our model has generated for some time – but we would caution that these estimates are affected by the contraction in GDP realised in Q2.

In turn, that contraction came after faster growth in Q1 as firms prepared for a potential Brexit at the end of March.

Firms, particularly in the manufacturing sector built up their inventories in Q1, and with the UK not exiting the EU at the end of March and with Brexit pushed down the road, firms in Q2 unwound these stockpiles leading to lower levels of activity.

Going forward, growth estimates are forecast to continue on a weak trajectory as long as Brexit uncertainty remains. What happens thereafter, remains highly uncertain.

Nowcast fo 2019 Q3

The latest nowcasts from our Scottish nowcasting model cover the 3rd quarter of 2019.

Our model suggest that:

  • Growth in Q3 is 0.28% which, at an annual rate, is 1.13%

This growth estimate comes after the release of official estimates of economic growth in 2019 Q2 from the Scottish Government which showed that the Scottish economy contracted by -0.3% in Q2. This was slightly more than the UK as a whole, which contracted by -0.2%.

However the Scottish economy did grow 0.7% relative the the same quarter the year before, albeit again this was weaker than the UK as a whole, which expanded 1.2%.