The third GDP release for the first quarter of 2018 shows some surprises with some important revision to various sectors. Let’s take a look.
A quite different picture
Quarterly GDP growth for 2018q1 was revised up by 0.1% meaning that the UK economy expanded by 0.2% at the start of the year. Revisions also touched 2017 data and growth for 2017 has been downgraded to 1.7% instead of the 1.8% firstly thought.
As we have already analysed, the weak performance of q1 was a mix of various factors such as bad weather which affected construction and some services such as those in transports, food & accommodation and in-store retail.
Notably, construction was the sector affected the most by today’s revisions thanks to a new methodology introduced by the ONS. The sector, firstly thought to contract by 3.3% in the preliminary release and 2.7% in the second release, has actually contracted just by 0.8%. This was also partly due to huge revision in 2017 data where figures were revised up 1.4%.
Historically ONS struggled with estimates of the construction sector which were commonly revised up after the preliminary releases. Hopefully the new methodology will give us more reliable statistics, even if we understand the difficulties in working with national statistics.
Construction was not the only sector touched by revisions.
Indeed, manufacturing was also revised and in this case it’s not great news. The small expansion we talked about (+0.2% in the first quarter of 2018) has now become a small contraction (-0.1%).
As you might already imagine, the differences within the manufacturing sectors are even bigger moving from the 3.6% upwards revision of the electrical sector (which still remains one of the worst Q1 performer at -5.3%) to the 2.8% downward revision to other transport (mainly aerospace and shipbuilding).
Business investment in struggling but not as much as total investment
After the preliminary release, several analysts thought that the GDP by expenditure breakdown (only available from the second release) would have shown a small contraction of consumption expenditure and a small expansion of investment. In May we learned that this was not the case and the June release confirmed it.
The second GDP release showed business investment contracting by 0.2% in the quarter after a weak but positive expansion in the third and fourth quarter of 2017. However, since a lot was revised on the output side, the expenditure side was revised as well.
Now we know that business investment contracted by 0.4%, however the big expenditure downward revision was for the other components of gross fixed capital formation. Overall investments in the UK (business and non-business) contracted by 1.3% instead of the 0.9% expansion pencilled in the second release. Quoting the ONS “the revision was due mainly to the incorporation of updated information from central government departments and improved local government estimates”.
…and trade was revised too
Finally, trade balances were also affected by new data showing that exports were flat in the quarter (upward revised from the 0.5% contraction showed in the 2nd release) and imports were down 0.2% ( -0.6% in the 2nd release).
A new system is starting
From July, a new monthly GDP estimate will be introduced and quarterly releases will be reduced to two from the current three. ONS will remove the preliminary release in order to improve accuracy over timeliness which will still remain good by international standards.
If this is the case, we will welcome it with open arms!