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.


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July 2015 Nowcasts

Today (1st July) we release our latest set of nowcasts of the Scottish economy; these are our revised estimates of the growth in the current quarter (2015 Q2) and the previous quarter (2015 Q1) [1].

Headlines:

  • 2015 Q2 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.99%, the quarterly change is nowcast to be 0.49%
  • 2015 Q1 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.95%, the quarterly change is nowcast to be 0.48%

Both of these nowcasts have been revised down very slightly compared to those of June 2015, and are consistent with all of our nowcasts for 2015Q1 and Q2. In addition, both of these revised nowcasts are very similar to each other suggesting that the performance of the economy in Q1 and Q2 of 2015 has been broadly the same.

The new information released this morning reaffirms our view that growth is likely to continue to be modest but positive in Scotland through to the middle of 2015.

2015Q3 starts today, and looking forward there are a few things stand out as potentially important for the path of growth in the Scottish economy. First, growth in the overall UK economy in 2015Q1 was slightly higher than initially thought, estimates now put it at 0.4% from the initial estimate of 0.3% (at an annualised rate this equates to growth of 2.9% compared to 2.5%). Second, the ongoing Eurozone crisis, currently focused around Greece, is thought to be a threat to the health of the UK economy and events there are likely to prove important for the short to medium term growth of the UK and Scottish economies. Third, on a positive note, the ONS reported that the disposable income of UK households grew at its fastest rate since 2001– welcome news- but it is also worth noting that in per capita terms, real household disposable income was unchanged in 2015Q1. Fourth, there is a UK Government budget due on 8 July 2015, the contents of which may -and are certainly intended to- alter the path of UK and Scottish economic growth. The countdown to budget day begins…

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] Sole responsibility for the content of the blog post this month rests with Stuart McIntyre, Grant Allan was away.

June 2015 Nowcasts

Today (1st June) we release our latest set of nowcasts of the Scottish economy; these are our revised estimates of the growth in the current quarter (2015 Q2) and revised estimates for 2015 Q1 [1].

Headlines:

  • 2015 Q2 GDP growth in Scotland, at an annualised rate, is nowcast to be 2.08%, the quarterly change is nowcast to be 0.52%
  • 2015 Q1 GDP growth in Scotland, at an annualised rate, is nowcast to be 2.09%, the quarterly change is nowcast to be 0.52%

Both of these nowcasts are broadly in line with those obtained last month, and are very similar to each other suggesting that the performance of the economy in Q1 and Q2 of 2015 has been broadly similar. After three successive quarters of growth of 0.6% – between the second, third and last quarters of 2014 – our nowcasts are consistent with a slowing of the quarterly rate of growth in the first half of 2015.

This very limited change in our nowcast estimates is a reflection of the muted change in the underlying fundamentals for Scotland. The very slight increase that we find is likely driven by those factors showing some moderate increases, for instance PMI Northern Ireland, which is known to be useful in nowcasting the Scottish economy. In addition, BoS PMI Scotland (released mid-May) moved from showing a slight decline in March to slight growth in April.

This reaffirms our view from May 1st that growth is likely to continue to be modest but positive in Scotland through to the middle of 2015.

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] Bank of Scotland PMI Scotland are reported by Lloyds Banking Group here.

May 2015 Nowcasts

Today (1st May) we release our latest set of nowcasts of the Scottish economy; these are our estimates of the growth in the current quarter (2015 Q2) and revised estimates for 2015 Q1 [1].

Headlines:

  • 2015 Q2 GDP growth in Scotland, at an annualised rate, is nowcast to be 2.05%, the quarterly change is nowcast to be 0.51%
  • 2015 Q1 GDP growth in Scotland, at an annualised rate, is nowcast to be 2.29%, the quarterly change is nowcast to be 0.53%

This estimate for 2015 Q1 is the lowest we have yet obtained for this quarter. Our nowcasts show that growth in Q1 and Q2 2015 has been weaker in Scotland than we nowcast it to be at the end of 2014, and lower than the first official estimate of Q4 2014 growth in the Scottish economy released in April 2015. While the Scottish economy is still growing, these estimates suggest it is doing so at a lower rate than in previous quarters.

In terms of recent economic news, UK growth in the first quarter of 2015 was recently announced to be 0.3 per cent, somewhat weaker than expected and lower than previous quarters. This has important implications for Scotland given that, based on the most recent Scottish Government data, around 62 per cent of all Scottish exports are to the rest of the UK. In addition, we learnt on the 22nd of April that Scottish manufactured exports dipped by 0.8 per cent in Q4 2014. To put this into context, according to data released in January 2015, 60.2 percent of Scottish exports to the rest of the world (i.e. outside the UK) were from the manufacturing sector.

Beside this somewhat negative news for the Scottish economy, we have also seen better news on employment in Scotland, with youth unemployment (both in terms of the level and the rate of youth unemployment) at its lowest level in the past five years. This positive news is echoed in the Bank of Scotland Jobs report (released on 20th April); albeit this report suggests that the pace of job growth is slowing.  In addition, it suggests a decline in jobs in some parts of Scotland (Aberdeen), likely linked to recent events affecting the North Sea oil and gas sector, but job growth elsewhere (e.g. Dundee).

External factors for both the UK and Scottish economies are still a cause for concern. Growth in Europe is still weak, explained in part by ongoing growth concerns across the globe (Wall Street Journal). Even China has started using monetary policy to stimulate its economy (Bloomberg). Employment growth, in aggregate, is continuing in the UK and Scotland but at a slower pace and with an unclear on-going impact on real wages which have grown somewhat in the past 5 months after 5 years of decline (Financial Times). The imminent UK General Election and the associated political uncertainty, which if the opinion polls are to be believed won’t be settled with the announcement of the election result itself, is unlikely to aid economic growth in Q2 2015 -even if the scale of its impacts is uncertain- something that the Financial Times highlighted this week.

In short, the prevailing news suggests that growth is likely to continue to be modest but positive through the middle of 2015.

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] Bank of Scotland PMI Scotland are reported by Lloyds Banking Group here.