This week the Scottish Government published monthly GDP statistics for the month of May. These showed that the economy contracted in May by 0.2% (writes Fraser of Allander Institute’s MAIRI SPOWAGE).
This follows (larger than thought before) contractions in March and April, which means that in total the economy has contracted by 0.4% in the 3 months to May.
Now, these monthly figures can of course be volatile, and we shouldn’t read too much into the individual movements every month. The first estimates that are produced for each month and quarter are also more subject to revision than older estimates.
This has been underlined by the media line “Scotland is growing at 4 times of the UK” (which we discussed the issues with as part of a previous update) now no longer being true for the first quarter of the year. For the first quarter, the new estimate is that Scotland grew by 0.2% compared to 0.1% for the UK as a whole.
The recent monthly contractions have also meant that the size of the Scottish economy has dipped slightly below that all-important level of February 2020, the so-called “pre-pandemic levels of output”.
Bearing in mind the caveats above, we can see in the latest figures significant contractions in the wholesale and retail and accommodation and food services sectors, perhaps signalling the contraction in consumer-facing services we have been expecting given the pressure on household budgets.
In production, there was a very large contraction in the electricity and gas supply sector, which, given the dominance of wind generation in Scotland, is likely to reflect the weather in May (i.e. it wasn’t very windy). The construction sector has also shown contractions in each of the last 3 months, although in general, this sector’s output is well above pre-pandemic levels.
Towards the end of August, we’ll get the figures for June which will give us the first estimate of the figure for the full quarter. There will have to be a significant recovery in June for that not to be a contraction overall. Of course, there would also have to be a contraction in Q3 for us to be technically in recession.
We’ll also be looking with interest at the new forecasts produced by the Bank of England next week. The decision on rates will of course take the headlines. The Bank’s view may soften slightly, with market expectations coalescing around a 0.25 rise in the base rate. However, we’ll also be digging through their new forecasts to see what the Bank is expecting to happen for the rest of 2023 and beyond.
We’ll discuss all this in next week’s update! Enjoy the weekend, whether you’re seeing Barbie, Oppenheimer, or simply dodging the rain at a BBQ!