August 2015 Scottish Growth Estimates

Today (31st July) we release our latest set of nowcasts of the Scottish economy; these are our revised estimate of the growth in 2015 Q2 and our first estimate for 2015 Q3 [1].

Headlines:

  • 2015 Q3 GDP growth in Scotland, at an annualised rate, is nowcast to be 2.0%, the quarterly change is nowcast to be 0.5%
  • 2015 Q2 GDP growth in Scotland, at an annualised rate, is nowcast to be 2.18%, the quarterly change is nowcast to be 0.54%

This represents a slight upward revision in our previous estimate for 2015 Q2, and a first estimate for 2015 Q3 which is broadly in line with our estimates for the previous quarter.

Given that we are in the recovery after a severe recession, one might reasonably expect growth to be above its average long-term trend (which for Scotland is around 2%)[2]. In this light, one might consider quarter-on-quarter growth on an annualised basis of around 2% to be somewhat disappointing.

At the end of the first month of 2015 Q3, it is worth reflecting on a few factors which are going to be important in the coming months for the Scottish economy. Firstly, this week we learned that 2015 Q2 GDP in the UK increased by 0.7%, which given the extent of Scotland-Rest of the UK trade, is good news for Scotland. Secondly, the level of uncertainty in the Eurozone seems to have abated somewhat, something that is reflected in more recent economic growth estimates and forecasts for Europe, this should help with Scottish external demand. Thirdly, oil prices are still depressed at around $50 a barrel and most projections suggest that it will remain so for some time. In addition, we are already seeing evidence of firms in this sector seeking to reduce their headcount and scale back their activities; this is likely to have particularly damaging consequences for short term economic activity throughout the Scottish supply chain. Finally, poor summer weather is likely to depress growth in sectors such as tourism and food and drinks. For instance, just this week AG Barr reported that the poor weather was likely to have a negative impact on profitability.

In summary, while the external growth signs are positive, growth in domestic demand in aggregate is likely to remain muted through 2015 Q3. This suggests a continuation of the trend growth observed in recent quarters, with no real indication that the economy might outperform expectations.

For details of how these, and other “live” data on Scottish economic activity are used to construct “nowcasts”, see the Methodology page.


[1] Note as explained in the methodological paper (here), we nowcast gross value added (GVA) rather than gross domestic product (GDP), because this is the regional equivalent of GDP which is produced, but we refer here to GDP for intuitive ease.

[2] Scotland’s annual average growth in the 30 years to 2007, i.e. pre-crisis, was 2% compared to 2.5% for the UK as a whole, see: http://www.gov.scot/Resource/Doc/919/0119249.pdf

Nowcast evaluation for 2015 Q1

Official estimates of the growth of the Scottish economy in the first quarter of 2015 (2015 Q1) have just been released and are available here. In line with our previous practice – see here for the evaluation for 2014 Q4 – we now evaluate our series of nowcasts for this quarter against the realised ‘actual’ GVA estimate. Note that the realised quarterly growth is first release, and – like much economic data – is likely to be revised in the future as more data on the performance of the Scottish economy in 2015 Q1 become available.

According to the realised growth estimate, the Scottish economy grew by 0.6% in the first quarter of 2015, or 2.4% on an annualised basis. This is the same growth rate as 2014 Q4, see here.

Based on our six nowcasts, we calculate a average absolute nowcasting error (AANE (explained in more detail below)) of 0.05 percentage points for the quarterly growth estimate, which gives an AANE of 0.22 percentage points based on the annualised estimates. These are slightly lower than our AANEs for 2014 Q4 (smaller numbers suggest better performance of the nowcasting model).

Our model is performing well, and our (unrounded) second and third nowcast estimates are remarkably close to the realised growth estimate (both equal 0.6 to 1 decimal place). In terms of timing, readers should note that our second Q1 2015 Nowcast estimates were released on March 1st (headed ‘March’ in the tables below) and uses data which were released during February, this is the standard estimation and release schedule for our Nowcasts. The fact that our estimates are so close to the official estimates highlights the advantages of this methodology both in terms of accuracy and timeliness. It also bears out what is reported in the working paper for this work, that the second and third nowcasts for any given quarter (both ‘in quarter’ nowcasts) are the most accurate.

For reference, we produced six nowcasts for 2015 Q1 with estimates (identified by month of release, with links to the blog post) of:

February March April May June July
0.70% 0.55% 0.57% 0.53% 0.52% 0.48%

Actual: 0.6%

Which at an annualised rate, gives estimates of:

February March April May June July
2.83% 2.21% 2.29% 2.12% 2.10% 1.93%

Actual: 2.4%


Average absolute nowcast error (AANE) is calculated as the average of the absolute differences between each of our nowcasts and the realised estimate for Scottish GDP for that quarter.


July 2015 Nowcasts

Today (1st July) we release our latest set of nowcasts of the Scottish economy; these are our revised estimates of the growth in the current quarter (2015 Q2) and the previous quarter (2015 Q1) [1].

Headlines:

  • 2015 Q2 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.99%, the quarterly change is nowcast to be 0.49%
  • 2015 Q1 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.95%, the quarterly change is nowcast to be 0.48%

Both of these nowcasts have been revised down very slightly compared to those of June 2015, and are consistent with all of our nowcasts for 2015Q1 and Q2. In addition, both of these revised nowcasts are very similar to each other suggesting that the performance of the economy in Q1 and Q2 of 2015 has been broadly the same.

The new information released this morning reaffirms our view that growth is likely to continue to be modest but positive in Scotland through to the middle of 2015.

2015Q3 starts today, and looking forward there are a few things stand out as potentially important for the path of growth in the Scottish economy. First, growth in the overall UK economy in 2015Q1 was slightly higher than initially thought, estimates now put it at 0.4% from the initial estimate of 0.3% (at an annualised rate this equates to growth of 2.9% compared to 2.5%). Second, the ongoing Eurozone crisis, currently focused around Greece, is thought to be a threat to the health of the UK economy and events there are likely to prove important for the short to medium term growth of the UK and Scottish economies. Third, on a positive note, the ONS reported that the disposable income of UK households grew at its fastest rate since 2001– welcome news- but it is also worth noting that in per capita terms, real household disposable income was unchanged in 2015Q1. Fourth, there is a UK Government budget due on 8 July 2015, the contents of which may -and are certainly intended to- alter the path of UK and Scottish economic growth. The countdown to budget day begins…

For details of how these, and other “live” data on Scottish economic activity are used to construct “nowcasts”, see the Methodology page.


[1] Note as explained in the methodological paper (here), we nowcast gross value added (GVA) rather than gross domestic product (GDP), because this is the regional equivalent of GDP which is produced, but we refer here to GDP for intuitive ease.

[2] Sole responsibility for the content of the blog post this month rests with Stuart McIntyre, Grant Allan was away.