Services sector growth projected to be stronger in Q2 2017 than Q1 2017, but other sectors projected to have seen weaker growth
UK GDP growth is projected to have remained sluggish in Q2 2017, growing by just 0.3%, according to the latest PwC UK Economic Outlook report. This follows the pattern of growth easing from 0.7% quarter-on-quarter in Q4 2016 to 0.2% in the first quarter of 2017.
PwC’s projections for Q2 growth are based on their new ‘nowcasting’ model, developed to combine expert human judgement and artificial intelligence (AI) machine learning techniques to produce more timely GDP estimates, ahead of those published by the ONS.
John Hawksworth, chief economist at PwC, commented:
“There is no way to predict GDP growth with perfect accuracy, but our new nowcasting model, using the latest AI machine learning techniques to augment human judgement, has performed well in tests using data for the past four years.
“It allows us to look at a very broad range of explanatory variables to estimate how fast the economy is growing several weeks ahead of official preliminary estimates being published by the ONS.
“The model allows for rapid updating of GDP estimates over time, but at present it points to continued sluggish UK growth of only around 0.3% in the second quarter. While retail sales growth has been somewhat stronger than in the first quarter, this is offset by slower estimated growth in transport, industrial production and construction.”
Historical performance of PwC nowcasting model vs actual GDP growth
PwC economists have tested the performance of their nowcasting model over the past four years using the data that would have been available at the end of each quarter (almost a month in advance of the ONS preliminary GDP estimate). The results of this exercise are summarised in the chart below.
PwC’s nowcasting model would have been able to pick up changes in the direction of GDP growth correctly 94% of the time over the four year testing period with an average error of less than 0.2 percentage points. This improves on the commonly referenced Reuters Poll of forecasters and comes close to matching the accuracy of the ONS’s own preliminary estimate of real GDP growth (taken as a forecast of final real GDP growth), while being available several weeks earlier.