December nowcasts of the Scottish economy

 

At the start of a big week of news with the Scottish Budget and the first forecasts by the Scottish Fiscal Commission, we’ve run our nowcasting model with the latest official and survey data to estimate current rates of growth in Scotland.

Our model suggest that the disappointing – and well below trend – levels of economic activity experienced over the past couple of years appears to be continuing.

Specifically, our model estimates that:

  • GVA growth in 2017Q3 is 0.38% which, at an annual rate, is 1.51%. This is up slightly on last month’s estimate.
  • GVA growth in 2017Q4 is 0.35% which, at an annual rate, is 1.40%. This is essentially unchanged from our estimate last month.

FAI nowcasts and official Scottish Government GDP statistics

Untitled

The chart above shows how our nowcasts since the start of 2014 have performed relative to the first release of Gross Value Added (GVA) from the Scottish Government over this period of twelve quarters (recall that in line with standard practice GVA data are revised in light of additional data being received).

One interesting feature is that our average nowcast over this period is close (+0.45%) to the average initial release of GVA (+0.37%) as indicated by the dashed lines.

The latest Fraser Economic Commentary is released tomorrow, with new forecasts for the Scottish economy through to 2020.

Later on this week the draft Scottish Budget is released, alongside which the Scottish Fiscal Commission will release their first forecasts of Scottish economic growth and the devolved taxes. With weak economic growth in recent times (just 0.1% over the 3-months to June, and over the year around one-third that of the UK) it will be interesting to see the extent to which the Scottish Fiscal Commission foresee this continuing.

It will also be interesting to see what new measures and initiatives are announced in the Budget to help boost the Scottish economy.

Advertisements

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.


Nowcast evaluation 2014 Q4

We have been nowcasting growth in the final quarter of 2014 since November 2014. The first official estimates of Scottish GDP for 2014 Q4 have just been released by the Scottish Government.

We can now assess how accurate our released nowcasts for this quarter have been. The official release puts growth in the Scottish economy in the last quarter of 2014 at 0.6% (or 2.4% at an annualised rate).

Based on our 5 nowcasts, we therefore have a average absolute nowcasting error (AANE (explained in more detail below)) of 0.07 percentage points for the quarterly growth estimate, which gives an AANE of 0.27 percentage points based on the annualised estimates.

It is often difficult to put these error evaluations into a proper and understandable context, and so while it is not a perfect reference point for our AANE, we provide at least as an initial one based on work by the Office of Budget Responsibility (OBR).

The OBR released an evaluation of their UK GDP forecasts in October 2014. This showed (p92) that the average absolute forecast error for the OBR’s Q4 in-year forecasts (reported between 2010 and 2013) for annual GDP growth was 0.475. For our 2014Q4 nowcast we have an absolute error of 0.27 on our annualised growth estimates, suggesting that our model is performing well.

We produced 5 nowcasts for 2014 Q4 with estimates (identified by month of release, with links to the blog post) of:

December January February March April
0.68% 0.70% 0.64% 0.66% 0.68%

Actual: 0.6%

Which at an annualised rate, gives estimates of:

2.75% 2.81% 2.59% 2.65% 2.77%

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 value for Scottish GDP for that quarter.