german federal ministry of economics german federal ministry of finance short-term economic...
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German Federal Ministry of Economics
German Federal Ministry of Finance
Short-term economic indicators for business
cycle analysis and forecasts
as a basis for Economic and FiscalPolicy Making
Presentation for the OECD STESWP meeting, 23 - 24 June 2008
Dr. Hartmut Hüsges, Federal Ministry of FinanceDr. Christhart Bork, Federal Ministry of Economics and Technology
Economic Analysis and Forecasts in the Government
1. Role and Purposes
2. Data Requirements
3. Crucial Developments
German Federal Ministry of Economics
German Federal Ministry of Finance
Purposes of observation,analysis and forecasting
Information about economic and fiscal developments
Support of macroeconomic and fiscal policy making
Set-up of federal and social security budgets
German Federal Ministry of Economics
German Federal Ministry of Finance
Purposes of observation, analysis and forecasting (cont.)
Internal information:Information of the Ministers
about economic and fiscal development
i.e. about- developments and perspectives in the
economy- show options/consequences for policy
formulation
German Federal Ministry of Economics
German Federal Ministry of Finance
Purposes of observation,analysis and forecasting (cont.)
Internal information (cont.):Set-up of the budget
- Estimation of revenues- Estimation of expenditures
German Federal Ministry of Economics
German Federal Ministry of Finance
Purposes of observation,analysis and forecasting (cont.)
Internal information (cont.): Identification of economic policy areas of action
- Diagnosis is a precondition for policy formulation
- Formulation of policy targets
- Preparation of measures / instruments
- Simulation of policy impacts
Policy control / support of policy making
German Federal Ministry of Economics
German Federal Ministry of Finance
Purposes of observation,analysis and forecasting (cont.)
External information:
Informing the public about economic development, interpretation
Informing the public about the economic and fiscal policy
Reporting to international institutions (EU, OECD, IMF)
German Federal Ministry of Economics
German Federal Ministry of Finance
Federal Ministry of Economics and Technology is responsible for short and medium term projections.
Other Ministries involved are mainly Federal Ministry of Finance, Federal Ministry of Health, Federal Ministry of Labour and Social Affairs, Office of the Chancellor.
Responsibilities for analysis and forecasting
German Federal Ministry of Economics
German Federal Ministry of Finance
Periodicity of Forecasts
– Very short term forecasts or “now-casting”• Flash-estimate for each quarter
– Short term projections• January: annual economic report• April: spring projection• October: autumn projection
– Medium and long term projections
German Federal Ministry of Economics
German Federal Ministry of Finance
Data requirements:
• System of National Accounts as a consistent analytical framework
• Business cycle indicators
• Other relevant data like exchange rates, interest rates, world market development, etc.
German Federal Ministry of Economics
German Federal Ministry of Finance
Business cycle indicators used:
• business climate, situation and expectations by sectors • orders and production in industry• orders and production in construction• retail and wholesale trade• export expectations• foreign order, exports, imports, terms-of trade• prices (e.g. raw materials, import/export prices, producer
prices, consumer price index)• labour market (e.g. employment, unemployment,
demand and supply of labour)• quarterly gross domestic product (GDP) and its
components
German Federal Ministry of Economics
German Federal Ministry of Finance
Main principle of forecasting:
Use the same approaches, methods, and indicators applied by the Federal Statistical Office for updating national accounts data(based on indicators until primary statistical data are available)
German Federal Ministry of Economics
German Federal Ministry of Finance
Examples:
Estimation of value added in
• manufacturing industry
• retail sales
German Federal Ministry of Economics
German Federal Ministry of Finance
German Federal Ministry of Economics
German Federal Ministry of Finance
Value Added Manufactoring Sector (SNA) and Production Index Manufactoring
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1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Chan
ges a
gain
st p
revio
us ye
ar
Value Added
Production Index
German Federal Ministry of Economics
German Federal Ministry of Finance
Value Added Retail Sector (SNA) and Retail Sales Index
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1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Chan
ges a
gain
st p
revio
us ye
ar
Value Added Retail Sector
Retail Sales Index
LimitationsGDP data subject to substantial revisions:
• Private Consumption (retail sales subject to enormous revisions)
• Exports, Imports (foreign trade statistics: problems of time consistency)
• Inventories (no data available, calculated as a residual)
• Investments in machinery and equipment (no data from primary statistics available; estimated by a commodity flow approach)
• Services sector (lack of information, use of auxiliary data, e.g. employment figures)
German Federal Ministry of Economics
German Federal Ministry of Finance
Examples:
Revisions of
• retail sales index
• employment data
German Federal Ministry of Economics
German Federal Ministry of Finance
German Federal Ministry of Economics
German Federal Ministry of Finance
Revision of Retail Sales Index (seasonal adjusted)
100
101
102
103
104
105
106
107
108
109
110
111
2003
= 1
00
published June 2008
published January 2008
-7,0-6,0-5,0-4,0-3,0-2,0-1,00,01,02,0
Jan 07 Feb 07 March 07 Apr 07 Mai 07 June 07 July 07 Aug 07 Sep 07 Oct 07 Nov 07
Changes against previous months
German Federal Ministry of Economics
German Federal Ministry of Finance Employment seasonal adjusted (Spring forecast)
38600
38800
39000
39200
39400
39600
39800
40000
40200
40400
Thou
sand
Per
sons
38600
38800
39000
39200
39400
39600
39800
40000
40200
40400
-100
-50
0
50
100
Jan Fe Mr Apr
Mai
Jun Jul
Au Se Okt
Nov De Jan Fe Mr Apr
Mai
Jun Jul
Au Se Okt
Nov De Jan Fe Mr Apr
Mai
Jun Jul
Au Se Okt
Nov De Jan Fe Mr Apr
Mai
Jun Jul
Au Se Okt
Nov De Jan Fe Mr Apr
Mai
Jun Jul
Au Se Okt
Nov De
2004 2005 2006 2007 2008
-100
-50
0
50
100Changes against previous months
Red Line: Data from March 08blue Line: Data from April 08
Crucial developmentsAt the expense of quality and accuracy:• measures to reduce “bureaucracy burden”
(reduction of sample size, raising threshold values for recording, administrative data replace primary statistics)
• more timeliness (quarterly GDP: discussion about t+45 vs. t+30)
• more completeness in national accounts – despite lack of statistical data (FISIM, immaterial investments, informal sector, discussion about recording human capital)
German Federal Ministry of Economics
German Federal Ministry of Finance
Our preference as forecasters
• High quality data with less revisions
rather than
• more timely and
• more complete GDP data without statistical basis
German Federal Ministry of Economics
German Federal Ministry of Finance
Thank you for your attention!
German Federal Ministry of Economics
German Federal Ministry of Finance