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.

March Scottish Nowcast update

Economic forecasting and nowcasting is notoriously difficult – even more so in a period of heightened economic uncertainty.

With the 29th March looming large on the calendar, economic uncertainty at present is extraordinarily high.

With this in mind, we report the latest results from our nowcasting model for Scotland.

Our nowcast for GVA growth in 2018 Q4 is 0.29% which, at an annual rate, is 1.16%

Our nowcast for GVA growth in 2019 Q1 is 0.31% which, at an annual rate, is 1.24%

These estimates are consistent with the economic narrative developing in the UK, but also in Scotland, of businesses continuing to trade in a ‘business as usual’ manner, but holding off on the sorts of investment decisions which might produce growth at or above long-term trend growth.

This is partly reflected in the early measures of activity provided by business survey indicators, which we use in our model. The PMI for January showed activity declining in Scotland (as well as other places like London) in the first month of the year.

Official data on Scottish growth in 2018 Q4 will be released on the 20th of March, for comparison UK growth in Q4 came in at 0.2%, representing weak and below trend growth. Scotland had grown ahead of the UK in the first half of 2018, but data for the summer was much weaker with Scotland lagging the UK once more.

We will have to wait until sometime in June for official estimates of growth in Q1 2019 in Scotland.

Estimates for the whole of the UK will be released in May, and should the UK exit the EU without a deal on 29th March – all eyes will be on the early indicators of activity in the economy to assess the impact.

October nowcast of the Scottish economy

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.