November nowcast update!


Grant Allan & Stuart McIntyre
http://www.nowcastingscotland.com 
Fraser of Allander Institute, University of Strathclyde


In this blog we provide an update from our nowcasting model of the Scottish economy. This includes an updated estimate for Q3 of 2017 alongside our first nowcast for 2017 Q4.

Our model estimates:

  • GVA growth in 2017 Q3 is 0.32% which, at an annual rate, is 1.28%. On a quarterly growth basis, this is down over percentage points on our estimate of growth in Q3 from last month.
  • GVA growth in 2017 Q4 is 0.34% which, at an annual rate, is 1.37%

Our nowcast model results are summarised over time in the figure below. The period of relatively flat growth through much of 2016 is clearly evident. As we have observed before, our model tends to produce estimates which are less volatile than the first release of GVA but which capture the trend rather well as the figure below illustrates.

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Economic growth in Scotland has been sluggish for some time, reflected in the official data and in our nowcast estimates; this makes the downward revision to our estimate for 2017 Q3 this quarter (of 0.1 percentage points; from 0.43% last month to 0.32% this month) a particular concern.

This downward revision is driven by the continued weakness of a range of indicators of the health of the Scottish economy. While the labour market remains robust, elsewhere in the economy there are signs of substantial weakening. Not least in retail sales where growth was flat in the third quarter of 2017 was flat (0.0% growth). Other indicators of economic activity, such as business investment, are a further cause for concern for the short-term outlook for Scottish growth.

The next Fraser Economic Commentary will be published in December, and we will delve into these trends in more detail there.

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May nowcasts…

Slightly later than usual, we release the results from our nowcasting model of the Scottish economy.

Our nowcasts show:

  • GVA growth in 2017 Q1 was 0.31% which, at an annual rate, is 1.25%. This is down on our last nowcast.
  • Our first nowcast for GVA growth in 2017 Q2 is 0.34% which, at an annual rate, is 1.43%
It is little surprise that we’re seeing a downward revision to our estimate of 2017 Q1 Scottish GVA growth.

Two obvious (although not exhaustive) reasons for this, firstly the recent release of 2016 Q4 GVA growth estimates for Scotland showed that the economy contracted by 0.2% in the final quarter of last year. Secondly, the UK Q1 GDP growth estimate released last month showed slower growth in the UK than in recent quarters.

Our nowcasting model has tended to track fluctuations in growth reasonably well, while overestimating growth. For instance, our model showed below trend (but still positive growth) for 2016 Q4, and on the official data the economy contracted. Similarly, the model estimating positive growth in Q1 2017. Given this, a further contraction in the economy in Q1 -and thus a technical recession- is clearly a possibility.

We’ll be looking at, and commenting more, on the release of data for 2017 Q1 and Q2 in the coming weeks on the Fraser of Allander Institute blog (fraserofallander.org).

February Nowcasts

As usual for the start of the month, we release the results from our nowcasting model of the Scottish economy.

Since our last update, we have received data on the performance of the Scottish economy in Q3 of 2016, indicating growth of 0.2%.

These data suggest the continuation two worrying trends, firstly Scotland lagging behind growth in the rest of the UK, and secondly, Scotland underperforming relative to its own long term trend rate of growth. We commented in greater detail on these issues here.

This month, our model estimates:

  • GVA growth in 20164 of 0.38% which, at an annual rate, is 1.51% (this is down ever so from our last release)
  • GVA growth in 2017 Q1 is 0.40% which, at an annual rate, is 1.59%. This is our first nowcast for 2017 Q1, and is based only on data to 2016 Q4.

We also received revised official data for Q2 2016 this month.

Initially, the official data put growth in Q2 of 2016 at 0.4%. This was a surprise, as we noted at the time. The reason being that our ‘central’ nowcast estimate suggested growth of less than 0.3%, plus we were expecting an negative impact on GDP growth from the closure of the Longannet power station- which given their one-off nature wouldn’t be captured in our model.

These revisions to Q2 GDP growth rate, now put growth much lower at 0.2%. With the one off impact of the closure of Longannet in Q2, this might not be too concerning, however it comes in a sequence of very low, or no, growth quarters for the Scottish economy.

More generally, we discussed the outlook for the Scottish economy in some detail in the last Fraser of Allander Economic Commentary, see the summary here. Suffice to say substantial challenges remain.

Key labour market indicators continue to be stronger than one might expect given the muted growth Scotland has experienced since 2015, although concern remains about rises in inactivity. However, with inflation set to increase through 2017 there are signs of worsening consumer confidence. Any weakening in household demand will pose a further challenge to a fragile Scottish economy through 2017.

January nowcasts

Happy New Year!

We start 2017 with a new update from our nowcasting model for Scotland. These nowcasts relate to the last two quarters of 2016, a year which has offered plenty of economic challenges for the Scottish economy.

We will receive official estimates of Scottish GVA for 2016 Q3 next week. For the moment, our model produces the following estimates:

  • Our nowcast for GVA growth in 2016 Q3  is 0.32% which, at an annual rate, is 1.29% (essentially unchanged from our last nowcast update).
  • Our nowcast for GVA growth in 2016 Q4 is 0.38% which, at an annual rate, is 1.53% (this is very, very slightly up on our last nowcast update).

Data published next week will be the first official figures on economic activity in Scotland in the immediate period after the Brexit vote. 

For comparison purposes, growth for the UK as a whole in the third quarter was recently revised up to 0.6%, partly on the back of stronger than expected consumer expenditure growth.

Note, the current data show that Q1 growth in Scotland was 0.0%, and in Q2 was above expectations, coming in at 0.4%.