November nowcast update!

Labour Market data released later this morning will provide an update on how the Scottish labour market performed over the three months to the end of September.

In general the labour market has provided good news in recent years, with near record low unemployment and near record high employment. In contrast, economic growth has been weaker.

Recently it appears that growth may be beginning to pick up.

The Scottish Government estimated that the economy grew by 0.5% in 2018 Q2, slightly higher than in the UK as a whole.

Last week we learned that the UK economy had a strong Q3, growing at 0.6%.

While official estimates of growth in Scotland in Q3 will not be released until 19th December, our nowcasting model can provide some early insight into growth in Scotland in Q3 and indeed Q4.

Our model suggests that:

  • GVA growth in 2018 Q4 is 0.42% which, at an annual rate, is 1.68%
  • GVA growth in 2018 Q3 was 0.39% which, at an annual rate, is 1.57%

While these estimates suggest weaker growth than in 2018 Q2, our nowcasts for 2018 Q2 were also weaker (averaging around 0.3%) than the official estimate from the Scottish Government.

Next month’s nowcast will reflect the inclusion of the first survey data for 2018 Q4 in our model, and we will see what that does to our estimates!

August nowcast update…

We have updated our nowcasting model for the Scottish economy with the latest official statistics and survey data to produce new estimates of economic growth in Scotland in Q2 and Q3 of 2018.

  • Our nowcast for GVA growth in 2018 Q2 is 0.33% which, at an annual rate, is 1.34%.
  • Our first nowcast for GVA growth in 2018 Q3 is 0.39% which, at an annual rate, is 1.57%.

Relative to our last nowcast update our estimate for Q2 2018 has improved very slightly (up from 0.32%), but on balance the figures still suggest relatively weak growth.

This week, we’ll get revised official data for the Scottish economy when the next set of National Accounts are published. Summer is usually when more substantial revisions are put through the economic accounts – following publication of the latest Input-Output tables for Scotland in July each year – and these are likely to alter the pattern of past growth in Scotland. We’ll provide a short blog summarising these key changes.

All of this will be followed by – on the 19th of next month – the first set of official data covering the performance of the Scottish economy over the period March – June (Q2).

We’ll pick this issue up in more detail, as well as review the wider economic landscape, in the next Fraser Economic Commentary to be published in late September.

July Nowcast update…

This blog reports the latest estimate of economic growth in Scotland from our nowcasting model. Unlike previous blog posts, this one only includes estimates for one quarter rather than two.

The reason for this is that the Scottish Government have now shortened the time between the end of the quarter and the release of data on that quarter.

Data for 2018 Q1 (January – March) were released on 27th June 2018, only 88 days after the end of the quarter.

While this is still a longer lag in the release of the data than that for the UK as a whole, it is much shorter than the previous publication lag for Scottish data of around 115 days.

Improvements in the timeliness of regional economic statistics are to be welcomed, and statisticians in the Scottish Government should be congratulated for their work in this area.

Continue reading

September 2016 Nowcasts

Grant Allan & Stuart McIntyre, Fraser of Allander Institute, Department of Economics, University of Strathclyde

We have crunched the numbers on the data on the performance of the different components of the UK and Scottish economies released during August, and we’re got some results to share in terms of what this suggests about Scottish economic growth in the second and third quarters of 2016.

To briefly recap, in our nowcasting work we have been producing monthly estimates of the current growth rate in the Scottish economy for nearly two years now. While experience suggests that our nowcasting models have tended to overestimate Scottish GDP growth, two features of our results are important. First, we have seen that with each revision to official statistics – as a result of more data becoming available – the official estimate has got closer to our nowcast results. Second, while we tend to overestimate the level of GDP growth, we have generally been good at estimating its direction.

What are this month’s results?

For 2016 Q2 we are estimating GDP growth at 0.26% which, at an annual rate, is 1.01%. This is down from our last nowcast in early August which put growth in 2016 Q2 at 1.17%.

Note that we do not explicitly model the electricity sector within our nowcasting model, and therefore we will not capture the impact of the closure of Longannet in our Q2 nowcasts. Given the expected scale of this loss to GDP, estimated to be around 0.3-0.4% of GDP, our nowcasts suggest that the Scottish economy may well have contracted during Q2.

For the current quarter – 2016 Q3 – we estimate GDP growth to be 0.31% which, at an annual rate, is 1.25%.  Again, this is down from the last nowcast estimate of 1.51%.

The indication from measures like PMI were that economic activity in July was down significantly across all regions of the UK following the UK decision to leave the EU, albeit more recent PMI data have shown some improvement; notably yesterday’s Services PMI data. Given the extent of Scottish trade with the rest of the UK, strong economic performance in the rest of the UK is important in driving growth in Scotland.

What does this mean?

First, it is clear that economic growth in Scotland continues to diverge from growth in the rest of the UK. Q2 growth in the UK was estimated at 0.6%, compared to our nowcast of 0.26%. Taking into account the tendency of our model to overestimate GDP growth and the closure of Longannet, our results would suggest that it is highly likely that the Scottish economy contracted in 2016 Q2. The closure of Lonagnnet is a ‘one-off’ statistical hit to Scottish GDP, and should be interpreted as such, so we should avoid jumping too early to a conclusion that “Scotland is in recession”.

Second, it is clear that Scotland has now been deviating from its long-run growth rate for a considerable period of time now.

Third, with the devolution of significant tax powers to the Scottish Parliament how the Scottish economy is performing will have a much greater bearing on Scottish budgets. The report we release next week on the Scottish Government Budget will explain and explore these issues in more detail.

Fourth and finally, the ongoing challenges facing the oil and gas sector show no sign of abating. This has had a sustained impact on the onshore economy of the north-east, but through the supply chain of the sector it has also impacted on activity across Scotland.

 Looking forward

The rest of 2016 looks like it will be a difficult period for the Scottish economy. In addition to the challenges in the oil and gas sector, continued uncertainty surrounding Scotland’s membership of the European Union might be expected to act as a drag on economic activity. The Scottish Government ‘Programme for Government’ was unveiled this week and we will pick up on this and the wider economic outlook next week when we release our Scottish Budget Report.