April 2016 Scottish Economy Nowcasts

Today (1st April 2016) we release our latest series of nowcasts of the Scottish economy; these are our revised estimate of the growth in 2015 Q4 and 2016 Q1 [1].

Headlines:

  • 2016 Q1 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.39%, the quarterly change is nowcast to be 0.35%
  • 2015 Q4 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.33%, the quarterly change is nowcast to be 0.33%

These nowcasts represent a continued downward revision for 2015 Q4 and 2016 Q1.

Once again we are seeing a further weakening of our own estimates of economic growth in Scotland which raises the prospect that the Scottish economy may well have contracted in Q4 of 2015 and is well under performing trend growth rates in 2016 so far.

2015 Q4 estimates from the Scottish Government are due to be released on Wednesday 6th April 2015, this will provide the first official estimate of growth in this quarter and for 2015 as a whole, but expectations are that these will confirm Scotland’s continued economic under performance related to the UK as a whole.

We have noted in a number of recent posts about the trend of continuing weak growth in Scotland. While we have noted a number of reasons for this, the most worrying aspect of this is the absence of any sustained response or evidence that the end of this downward spiral might be in sight.

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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March 2016 Scottish Economy Nowcasts

Today (29th February 2016) we release our latest series of nowcasts of the Scottish economy; these are our revised estimate of growth in 2015 Q4 and 2016 Q1 [1].

Headlines:

  • 2016 Q1 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.51%, the quarterly change is nowcast to be 0.37%
  • 2015 Q4 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.37%, the quarterly change is nowcast to be 0.35%

These nowcasts essentially represent no change from our earlier nowcasts for these two quarters, and confirm the point estimates previously derived. As we noted in our last post, our nowcasts for Q2 and Q3 of 2015 were more optimistic than the first official release of GDP from the Scottish Government, and with this confirmation of our last set of nowcasts showing very muted growth in 2015 Q4 and 2016 Q1, we again reassert our concern about the lack of economic growth in Scotland through the end of 2015 and start of 2016.

The concerns highlighted in our end of year review post are still central to the path of Scottish growth (principally the impact of low Oil prices and continued weak export demand). To this list, one must now note the impact of any uncertainty associated with the forthcoming referendum on UK membership of the European Union. While, as was true of the Scottish Independence referendum in 2014, it is difficult to know ex—ante what impact the referendum will have on the path of economic growth, to the extent that businesses delay investment in the UK and/or Scotland it will certainly be one of the factors relevant to any assessment of the economic performance of the Scottish economy. This general economic uncertainty is perhaps most obviously being reflected in UK consumer confidence which is now at its lowest level since the end of 2014.


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.

February 2016 Scottish Economy Nowcasts

Today (1st February 2016) we release our latest series of nowcasts of the Scottish economy; these are our revised estimate of the growth in 2015 Q4 and our first estimates for 2016 Q1 [1].

Headlines:

  • 2016 Q1 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.52%, the quarterly change is nowcast to be 0.38%
  • 2015 Q4 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.38%, the quarterly change is nowcast to be 0.34%

These nowcasts represent a downward revision for 2015 Q4, and our first indication of economic activity in Scotland in Q1 2016.

The estimate of Q4 2015 economic growth is down 0.07% (0.21% on an annualised basis), a notable decline given that, for the predictors we use, these nowcasts are now using all of the data that will be released relating to Q4 itself.

It is worth pointing out that our nowcasts for Q2 and Q3 of 2015 were more optimistic than the first official release of GDP from the Scottish Government, which found that the Scottish economy only grew by 0.1% in Q2 and Q3, versus our 4th nowcast (based on all the information on the quarter being available) of 0.54% and 0.33% respectively.

This further weakening of our own estimates of economic growth in Scotland raises the prospect that the Scottish economy may have contracted in Q4 of 2015. 

Q4 is a traditionally difficult quarter to predict given the role of bad weather, and associated travel disruption, and the festive period generally, on the economy. In Scotland in 2015 Q4 we can add to this the impact of the Forth Road Crossing being closed. With this in mind, our next set of nowcasts, which will be produced using data released during February and relating to January (the first month of Q1) and hence the first data we will receive which relate to Q1 itself, will be very interesting in helping us to understand the growth path of the Scottish economy at the start of 2016. 

We highlighted a number of factors which will be central to the performance of the Scottish economy in 2016 in our end of year review post. The continuing impact of low Oil prices on the economy of the North East of Scotland (the City-Region Deal for the North East announced last week is great news in this regard), and continued weak export demand (here Scotland is helped by demand from rUK, but overseas export demand is still weakening) are combining to undermine economic growth in Scotland.

UK GDP estimates for Q4 2015 were released last week and showed growth of 0.5% (or 2% on an annualised basis). This is solid growth around trend levels. It is also far higher than what we are seeing in Scotland at the moment. If current trends in Scottish GDP growth continue, we may well see the economy shrink in the near future.

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.

Scottish Economy Nowcasts and an end of year review

Today (5th January) we release our latest series of nowcasts of the Scottish economy; these are our revised estimate of the growth in 2015 Q3 and our second estimates for 2015 Q4 [1].

Headlines:

  • 2015 Q3 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.41%, the quarterly change is nowcast to be 0.35%
  • 2015 Q4 GDP growth in Scotland, at an annualised rate, is nowcast to be 1.65%, the quarterly change is nowcast to be 0.41%

Our estimates for 2015 Q3 are essentially unchanged from last month, while our estimates for 2015 Q4 are being revised upwards, very slightly, as new information is being received on this quarter. 

Since we are now in 2016, it is perhaps worth reflecting back on the performance of the Scottish economy through 2015. The chart below shows each of our nowcasts for the four quarters of 2015 (starting with our first nowcast of Q1 released on 2nd February 2015). Recall that given the delay in the release of official estimates of Scottish GVA, we release 6 nowcasts per quarter, with the later nowcasts using the most data about that quarter, and the earliest nowcasts using the least information about that quarter (as these data are not released until during and in some cases after the quarter itself).

The chart below shows a couple of very useful things. Firstly, it demonstrates exactly what we have been saying on this blog throughout 2015- the Scottish economy is performing below what one might expect given the stage of the business cycle we are at. One would expect growth above long term growth rates of circa. 2%, which we are not seeing. Secondly, it demonstrates that the more information we are receiving about the economy, i.e. as we go from nowcast 1 to nowcast 6, the lower our estimates of economic performance in Scotland become. Thirdly, in all cases, we can see a clear downward trend in the nowcast rate of growth through 2015. This is likely to be reflecting -principally- the downturn in economic activity linked to the North Sea Oil and Gas sector, where activity remains subdued due to the rapid fall in the oil price since the summer of 2014. We will add to these data with our next three nowcasts as we produce additional estimates for 2015 Q4.

2015 Nowcasts

In terms of Q4, there are likely to be a couple of important factors which may drag growth even lower than our current estimates. Firstly, the recent closure and disruption to the Forth Road Crossing is likely to impact economic activity on the East Coast. While various numbers have been quoted in the media in recent weeks, the true impact will be reflected in the Q4 GVA estimates, official first estimates of which will be available in mid-April 2016.

Secondly, performance in Q4 is to some extent dependent upon footfall in shops over the important Christmas period (itself a reflection of underlying consumer confidence), and while overall employment numbers may look good, under-employment issues persist.

Looking forward to 2016, a few issues stand out. The first of these is the low oil price which is having a pronounced effect on the economy of the North East of Scotland. Towards the end of December Brent was trading at $36-39 (see first chart below, courtesy of Nasdaq).


Nasdaq brent

Similarly, the next chart (also courtesy of Nasdaq) illustrates Brent prices over the past 10 years, illustrating that Brent is now at or around its lowest price in that time period. This is not the place to engage in a debate about the nature and cause of the significant drop in the Oil price in the past year or more, nevertheless it is clear that something significant is going to be required to reverse the current low price in the Oil market. Additionally, while the Brent price is at or around levels seen towards the end of 2009, there are two important differences. The first is that forecasts of oil prices by the International Energy Agency and others generally expect that the oil price will continue around its current level through 2016. The second is that the costs of extraction activity in the UK Continental Shelf have increased over the period, placing a squeeze on the value per barrel extracted.

Nasdaq brent 10y

Secondly, external demand is of central importance to an open economy like Scotland. While growth in the rest of the UK has remained reasonably strong through 2015, although recently revised down slightly, weakening of external demand is likely to be a continuing concern through 2016. The recent decision to raise the interest rates in the U.S.A. very slightly suggests some degree of confidence in the improvements in economic performance there, however continuing lacklustre growth in the Eurozone will remain a concern.

Thirdly, while the most recent official estimates of GVA for Scotland (which were for Q2) were disappointing, they did suggest remarkable growth in the Construction sector. To the extent that the final two quarters of 2015 saw any weakening in construction demand, we are likely to see this translate into overall weakening of economic growth.

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.