As highlighted in last week’s Fraser Commentary, GDP data for Scotland is published this week. This will give the first official estimate of economic growth in the 1st quarter (i.e. the first three months) of 2017.
In the report we set out the latest results from our ‘nowcast’ modelling which give a complimentary estimate of how the Scottish economy is performing.
Our latest results are discussed here.
What is a ‘nowcast’?
Back in 2014, a team of FAI researchers began experimenting with statistical models to produce ‘nowcasts’ of the Scottish economy. These models make use of the most up to date data on the Scottish economy, for example ‘hard’ indicators such as labour market information and ‘soft’ indicators such as business surveys, to produce a near instant estimate of growth in Scotland (a ‘nowcast’).
Nowcasting is becoming increasingly popular as it can provide information well in advance of the publication of official statistics. In Scotland, whilst Scottish Government statisticians have made great progress in bringing forward the date of publication, GDP statistics are published around 100 days after the end of the quarter in question.
At the same time, with national accounts finding it increasingly difficult to track new technologies or evolutions in how our economy operates, nowcasts can themselves provide useful information – to complement traditional economic indicators – on the overall health of the economy.
Our nowcast use a wide variety of information including the –
- latest official statistics (such as Scottish and UK GDP figures as well as more recent data like retail sales);
- up to date Labour Market Data (not just for Scotland but all different regions/nations of the UK);
- latest business survey indicators (such as the RBS/FAI Scottish Business Monitor, the Scottish Chambers of Commerce Quarterly Indicator, the Bank of Scotland PMI);
- latest jobs market surveys; and,
- latest indicators of consumer confidence.
This information is then compiled to give a ‘best estimate’ of the performance of the Scottish economy.
Our latest nowcasts
Looking forward, our model currently estimates growth in 2017 Q1 of between 0.2% and 0.3% and a similar rate for Q2.
The information that we have therefore – and comparing such data to historical trends – suggests that the economy has been growing during the first six months of 2017 (albeit below trend).
This is broadly consistent with the results from today’s Scottish Business Monitor which we undertake with the Royal Bank of Scotland.
Of course, the actual figure for GDP may differ from the ‘nowcast’ for a variety of different reasons.
For example given the size of the Scottish economy, the GDP series can be subject to one-off swings (up or down) in one large sector or even one large company. These particular circumstances will have a disproportionate impact on the results even if the underlying trend is more stable. The ‘nowcast’ can’t capture such individual factors.
Another reason is statistical error. This is not ‘error’ in the sense of a mistake, but simply the statistical ‘noise’ that exists in estimation. There is also the ‘error’ that can arise when the GDP figures themselves – not the nowcasting – are revised (the Scottish series, understandably, is subject to greater revision than the UK series).
For example, over the last year, our model has tended to give a stronger estimate for Scottish growth than the official GDP series. If this was to continue then the next official GDP estimate may turn out to be lower than our nowcast. But then again, given the way in which economies operate (and the statistical data is compiled), some form of bounce back (from a lower base) is likely at some point in the Scottish GDP series.
As in the past, we continue to recommend that the focus of attention should be on trends over a number of quarters and sustained period of time.