German Federal Ministry of Economics German Federal Ministry of Finance Short-term economic...

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



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



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



Purposes of observation,analysis and forecasting (cont.)

Internal information (cont.):Set-up of the budget

- Estimation of revenues- Estimation of expenditures




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




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)



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



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



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.



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



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)



Examples:

Estimation of value added in

• manufacturing industry

• retail sales





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



Value Added Retail Sector (SNA) and Retail Sales Index

-6

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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)



Examples:

Revisions of

• retail sales index

• employment data





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 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


Mai

Jun Jul

Au Se Okt


Mai

Jun Jul

Au Se Okt


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)



Our preference as forecasters

• High quality data with less revisions

rather than

• more timely and

• more complete GDP data without statistical basis



Thank you for your attention!



German Federal Ministry of Economics German Federal Ministry of Finance Short-term economic...

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