Grant Allan & Stuart McIntyre
Fraser of Allander Institute, University of Strathclyde
As usual for the start of the month, we release the results from our nowcasting model of the Scottish economy.
Since our last update, we have received data on the performance of the Scottish economy in Q3 of 2016, indicating growth of 0.2%.
These data suggest the continuation two worrying trends, firstly Scotland lagging behind growth in the rest of the UK, and secondly, Scotland underperforming relative to its own long term trend rate of growth. We commented in greater detail on these issues here.
This month, our model estimates:
- GVA growth in 2016 Q4 of 0.38% which, at an annual rate, is 1.51% (this is down ever so slightly from our last release)
- GVA growth in 2017 Q1 is 0.40% which, at an annual rate, is 1.59%. This is our first nowcast for 2017 Q1, and is based only on data to 2016 Q4.
We also received revised official data for Q2 2016 this month.
Initially, the official data put growth in Q2 of 2016 at 0.4%. This was a surprise, as we noted at the time. The reason being that our ‘central’ nowcast estimate suggested growth of less than 0.3%, plus we were expecting an negative impact on GDP growth from the closure of the Longannet power station- which given their one-off nature wouldn’t be captured in our model.
These revisions to Q2 GDP growth rate, now put growth much lower at 0.2%. With the one off impact of the closure of Longannet in Q2, this might not be too concerning, however it comes in a sequence of very low, or no, growth quarters for the Scottish economy.
More generally, we discussed the outlook for the Scottish economy in some detail in the last Fraser of Allander Economic Commentary, see the summary here. Suffice to say substantial challenges remain.
Key labour market indicators continue to be stronger than one might expect given the muted growth Scotland has experienced since 2015, although concern remains about rises in inactivity. However, with inflation set to increase through 2017 there are signs of worsening consumer confidence. Any weakening in household demand will pose a further challenge to a fragile Scottish economy through 2017.
The Fraser of Allander Institute (FAI) is a leading economy research institute based in the Department of Economics at the University of Strathclyde, Glasgow.