Forecasts of the Scottish economy [November 2004]

Low, Kenneth (2004) Forecasts of the Scottish economy [November 2004]. Quarterly Economic Commentary, 29 (3). pp. 22-25. ISSN 0306-7866

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There has been little change to the world economy since July. There is evidence of relatively strong growth in the US, Japan and China for this year and next. The Euro Area is expected to pick up in 2005. Employment is rising and unemployment is forecast to fall gradually across the OECD. World trade is forecast to grow at 8.9 per cent this year and 10.1 per cent next year. Inflationary pressures are also building in the global economy due to capacity constraints and high oil prices. There have been some weak data in the US but many attribute this to higher oil prices and believe that this will be a temporary phenomenon. The outlook remains good for 2004 and 2005. There are some slight concerns about UK growth. This stems from the preliminary third quarter estimate of UK GDP where growth was only 0.4 per cent, nearly half the rate seen in the previous two quarters. This makes the upper limit of the Chancellor's forecast less likely but current forecasts still show that 3.3 per cent GDP growth could be attained in 2004. Services continue to drive growth but we suggest that UK manufacturing will have declined slightly in the third quarter because UK production fell by an estimated 1.2 per cent. We believe this because manufacturing accounts for 79 per cent of production and the previous figures show manufacturing and production moving in a similar fashion. CPI inflation remains relatively low at 1.1 per cent in (see The UK Economy for a fuller discussion of this). Interest rates have been held at 4.75 per cent. The UK labour market is showing signs of tightness but employment is still rising although this is now mainly due to increases in employees as self- employment fell in the third quarter. Average earnings only rose by 4.3 per cent in the latest twelve months and is on track to meet the forecast of 4.5 per cent for 2004. This level of growth is consistent with non-inflationary wage pressure. Unemployment remains low. There are still concerns over the UK PSNB.