November 2015 Scottish Economy Nowcasts

Today (2nd November) we release our latest series of nowcasts of the Scottish economy; these are our revised estimate of the growth in 2015 Q3 and our first estimates for 2015 Q4 [1].

Headlines:

  • 2015 Q3 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.33%, the quarterly change is nowcast to be 0.33%
  • 2015 Q4 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.71%, the quarterly change is nowcast to be 0.43%

These nowcasts represent a downward revision for 2015 Q3, and our first indication of economic activity in Scotland in Q4 2015.

We have noted in a number of our recent monthly updates that economic performance in Scotland has been disappointing through 2015, and while we are still finding positive growth in the Scottish economy through the third and fourth quarters, this is now considerably below long-term growth rates.  

In October we received official estimates of Scottish GDP for Q2 2015. These suggested that growth in Q2 2015 in Scotland was 0.1%. This is significantly lower than any of our nowcasts for Q2, and given that the underlying indicators for Q2 did not suggest such a significant drop, this substantial downward step in economic growth was a surprise to us. With the release of these new GDP data for Scotland, there was also a revision of the GDP series which lowered the official estimate for 2015 Q1 and 2014 Q4. We will shortly post a nowcast evaluation based on these new data.

Last week UK growth estimates for 2015 Q3 were released, and while reported growth of 0.5% was disappointing relative to expectations of 0.6-0.7%, it is significantly higher than the growth rate we are seeing in Scotland for Q2. What growth we did see in Scotland in 2015 Q2 was driven by growth in the construction sector with no growth in services and production activity contracting, whereas in 2015 Q3 in the UK as a whole, interestingly, we saw the construction and manufacturing sectors contracting and the services sector showing good growth.

These estimates for 2015 Q2 for Scotland are very worrying, with the economy on the verge of contracting in that quarter. That being said, what we are seeing in the raw data and finding in our nowcasts suggest somewhat stronger growth, if still very disappointing relative to long-term trend growth. Nevertheless, we are seeing a consistently weaker performance of the Scottish economy compared to the UK as a whole, and the lack of growth in the services sector in Scotland is an area of particular concern given ongoing issues affecting the manufacturing and production sectors (e.g. high input prices, China slowdown, European economic weakness, etc).  

Our next set of nowcasts, which will be produced using data released during November and relating to October (the first month of Q4) and hence the first data we will receive which relate to Q4 itself, will be instructive in terms of the path of economic growth in Scotland in Q4. Better performance through Q4 may well offset the reported lack of growth in Q2, and the underlying indicators are supportive of continued, if weak, growth in Scotland through 2015.

For details of how the data mentioned above, and other “live” data on Scottish economic activity are used to construct our “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.

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October 2015 Scottish Economy Nowcasts

Today (2nd October) we release our latest set of nowcasts of the Scottish economy; these are our revised estimate of the growth in 2015 Q2 and our second estimate for 2015 Q3 [1].

Headlines:

  • 2015 Q3 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.94%, the quarterly change is nowcast to be 0.48%
  • 2015 Q2 GDP growth in Scotland, at an annualised rate, is nowcast to be 2.13%, the quarterly change is nowcast to be 0.53%

These nowcasts represent a slight downward revision for 2015 Q3, and estimates for 2015 Q2 which are basically unchanged from our last update.

We pointed out in our last post that, post-recession, this level of growth was disappointing, and that still remains the case. Some reports released recently affirm that growth in Scotland is middling at this stage, for instance the Bank of Scotland Scottish Business Monitor reporting that on balance more firms are reporting increasing turnover although declines in exports reported in this survey are a cause for concern. On balance, they described expected growth in the Scottish economy through recent months as ‘moderate’. This is a view affirmed by the PMI indices which were released during September. The Bank of Scotland Report on Jobs released in September, focussing more on the labour market dynamics in Scotland, suggests that while job growth is continuing, the rate of job growth is slowing and is lower than elsewhere in the UK.

While we are confident of continued positive growth in the Scottish economy through the third quarter, at or around long term trend levels [2], we reiterate our belief that this represents disappointing performance given the stage of the business cycle we are currently at.

For details of how the data mentioned above, and other “live” data on Scottish economic activity are used to construct our “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] Scotland’s annual average growth in the 30 years to 2007, i.e. pre-crisis, was 2% compared to 2.5% for the UK as a whole, see: http://www.gov.scot/Resource/Doc/919/0119249.pdf

September 2015 Scottish Growth Estimates

Today (31st August) we release our latest set of nowcasts of the Scottish economy; these are our revised estimate of the growth in 2015 Q2 and our second estimate for 2015 Q3 [1].

Headlines:

  • 2015 Q3 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.99%, the quarterly change is nowcast to be 0.49%
  • 2015 Q2 GDP growth in Scotland, at an annualised rate, is nowcast to be 2.13%, the quarterly change is nowcast to be 0.53%

These represent very, very, slight downward revisions to our previous estimate for 2015 Q2 and 2015 Q3.

As we pointed out in our August 2015 nowcast post our nowcasts are suggesting that growth in Scotland is at its long-term growth rate. Given the contractions in the Scottish economy through the Great Recession, one might reasonably be expecting above trend growth at this stage in the business cycle, but nothing that we are seeing in the data or our nowcasts suggests that this is the case.

The most recent ‘State of the Economy’ report by the Scottish Government’s Chief Economist released on 21st August reports the consensus forecast of growth in the Scottish economy for 2015 as 2.4%. Based on our nowcasts for the year so far, this seems to us to be a little optimistic, with growth of around 2% seeming more likely as we head towards the fourth quarter. The key factors identified by the Chief Economist as central to the path of growth in the Scottish economy are the same as those we identified in our August 2015 nowcast post, namely: economic activity in the rest of the UK, external factors (e.g. Eurozone), and oil price impacts. So while we agree on the commentary, we feel that the consensus of 2.4% growth in Scotland this year is likely to prove to be too optimistic.

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.

August 2015 Scottish Growth Estimates

Today (31st July) we release our latest set of nowcasts of the Scottish economy; these are our revised estimate of the growth in 2015 Q2 and our first estimate for 2015 Q3 [1].

Headlines:

  • 2015 Q3 GDP growth in Scotland, at an annualised rate, is nowcast to be 2.0%, the quarterly change is nowcast to be 0.5%
  • 2015 Q2 GDP growth in Scotland, at an annualised rate, is nowcast to be 2.18%, the quarterly change is nowcast to be 0.54%

This represents a slight upward revision in our previous estimate for 2015 Q2, and a first estimate for 2015 Q3 which is broadly in line with our estimates for the previous quarter.

Given that we are in the recovery after a severe recession, one might reasonably expect growth to be above its average long-term trend (which for Scotland is around 2%)[2]. In this light, one might consider quarter-on-quarter growth on an annualised basis of around 2% to be somewhat disappointing.

At the end of the first month of 2015 Q3, it is worth reflecting on a few factors which are going to be important in the coming months for the Scottish economy. Firstly, this week we learned that 2015 Q2 GDP in the UK increased by 0.7%, which given the extent of Scotland-Rest of the UK trade, is good news for Scotland. Secondly, the level of uncertainty in the Eurozone seems to have abated somewhat, something that is reflected in more recent economic growth estimates and forecasts for Europe, this should help with Scottish external demand. Thirdly, oil prices are still depressed at around $50 a barrel and most projections suggest that it will remain so for some time. In addition, we are already seeing evidence of firms in this sector seeking to reduce their headcount and scale back their activities; this is likely to have particularly damaging consequences for short term economic activity throughout the Scottish supply chain. Finally, poor summer weather is likely to depress growth in sectors such as tourism and food and drinks. For instance, just this week AG Barr reported that the poor weather was likely to have a negative impact on profitability.

In summary, while the external growth signs are positive, growth in domestic demand in aggregate is likely to remain muted through 2015 Q3. This suggests a continuation of the trend growth observed in recent quarters, with no real indication that the economy might outperform expectations.

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] Scotland’s annual average growth in the 30 years to 2007, i.e. pre-crisis, was 2% compared to 2.5% for the UK as a whole, see: http://www.gov.scot/Resource/Doc/919/0119249.pdf