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