Grant Allan & Stuart McIntyre
Fraser of Allander Institute, University of Strathclyde
This month we’ve again run our nowcasting model with the latest data for the Scottish economy, and have produced the following estimates:
- GVA growth in 2017 Q2 is nowcast to be 0.37% (which, at an annual rate, is 1.50%)
- GVA growth in 2017 Q3 is nowcast to be 0.43% or 1.75% at an annual rate.
These essentially represent ‘no change’ relative to our estimates from last month.
Since we produced these estimates we received a official data from the Scottish Government on GVA growth in Q2 2017. This (first) estimate put GVA growth in the period from April to June relative to the previous three months at 0.1%. The published data also include revisions to the previous GVA estimates as discussed here.
This is lower than our nowcast, although it is worth noting that as highlighted here, Q2 GDP growth in the Services sector (representing three-quarters of the economy) grew at +0.7%. Similarly in the previous quarter, as detailed here, the original estimate of +0.8% GDP growth (since revised down to +0.6%) was driven by strong growth among sectors representing around 6% of the Scottish economy (sectors which historically have quite volatile output growth). In addition, this growth was driven almost entirely by external demand growth (i.e. exports to both the rest of the UK and rest of the world).
The chart below illustrates how our model has performed relative to the initial release of Scottish GVA in each quarter (this is the measure we ask the model to nowcast). Our model appears to generally track the trend in Scottish GVA, including the slowdown at during the first half of 2015.
Overall, our nowcast is much more stable than the actual GDP series. This is not that surprising. Because our nowcast is based upon a wide variety of official and unofficial data it should tend to track general conditions in the economy relatively well. What it will be less able to track are unique one-off events in individual sectors – like we have seen in the last two quarters – which given Scotland’s size can influence the headline GDP series. In times of volatility, it is best to focus on longer-term trends rather than individual quarterly changes.
Over the period on the chart below (representing the period where we’ve produced nowcasts in real time) our average GVA growth estimate is 0.45% compared to an average growth rate from the initial official estimate of GVA growth of 0.37%.
We will produce our first estimate for 2017 Q4 at the start of November.