The Conference Board of Canada 10/01 Communication Strategies for Economic Forecasts and Policy...

The Conference Board of CanadaThe Conference Board of Canada

10/01

Communication Strategies for Economic Forecasts and

Policy Simulations

Economic Modelling and Forecasting Project in Ukraine

October, 2001


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An Appropriate Communications Strategy is Key For Success

Preparing an economic outlook or policy simulation is of little value if there is a failure to effectively communicate the results


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The Guiding Principles

Understand the Audience Define your Message Understand the Forecasting Tool Know the Material


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Applications of Macroeconomic Models

Baseline Economic Outlooks Alternative Scenarios Shock-Minus-Control Analysis Policy Simulations


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Economic Outlooks

Understand the Audience Define the Message Understand the Forecasting Tool Know the Material


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Economic OutlooksUnderstand the Audience

It is essential to tailor communication to the needs and expertise of the audience

Try to put yourself in the shoes of your audience

Seek feedback on the effectiveness of the communication from the target audiences


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Economic OutlooksGovernment Sector: Typical Audiences

Internal Senior Management Peers in Other Departments Private Sector Senior Management Private Sector Analysts Media The Public


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Economic OutlooksPrivate Sector: Typical Audiences

Internal Senior Management Customers: Senior Management Customers: Analysts Media


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Economic OutlooksUnderstand the Audience

Audiences can usually be safely grouped together if they have similar needs and similar levels of expertise

Review your assumptions about your audiences

Effective communication begins with a thorough understanding of the audience


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Economic OutlooksDefine the Message

The key is to have a clear understanding of your message

Usually three to five Key Messages The Message must be tailored to the

needs and characteristics of the audience Context is Crucial


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Economic OutlooksUnderstand the Tool (I)

Macroeconomic Models are only one tool used to prepare economic forecasts

Other tools include time series analysis, leading indicators and ‘rules of thumb’

The model is not a perfect reflection of reality.


10/01Economic OutlooksUnderstand the Tool(II)

Econometric Model forecasts are based on a set of assumptions

The assumptions are partly embodied in the forecasts of the exogenous variables

How are you forecasting the exogenous variables? Judgement? Satellite Models?

Assumptions are also embodied in adjustments to the stochastic equations when they are unable to capture special events ( e.g., strikes, policy changes).


10/01Economic OutlooksUnderstand the Tool(III)

Identify the Forecast Assumptions that are important for your audience

Context is crucial The key forecast assumptions will depend

upon your key messages and your audience The key assumptions must be

communicated to the audience up front.


10/01Economic OutlooksUnderstand the Tool(IV)

You will never be perfectly accurate Don’t spend time talking about the tool --

only discuss the tool in response to questions or in technical forums

Keep the discussion focussed on key assumptions and key messages

Don’t be afraid to admit to failure -- be prepared to discuss what went wrong

NEVER cling to an outdated forecast


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Economic OutlooksKnow the Material

Be able to defend the key assumptions Know which assumptions are critical Be able to trace the causal path from key

assumptions to important outcomes Discuss risks and assign probabilities Risks can be used to develop alternative

scenarios Anticipate Questions


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Economic OutlooksTypical Communication StructureI. HighlightsII. Key MessagesIII. Exogenous Assumptions - discussed -defendedIV. Causal Links to Key OutcomesV. RisksVI. Conclusion that repeats key messages


10/01Economic OutlooksGovernment Sector: Typical Audience

Senior Management

Characteristics: No time Sensitive to political implications of

outlook Risk Sensitive Low level of technical expertise



Senior Management

Needs: Economic outlook for budget planning Economic outlook for policy design Economic outlook for political “heads

up”



Senior Management

Hardcopy Communication Design: Brief: two to three pages No technical content; no economic jargon No time for much discussion around

assumptions or causal links Give greater than normal weight to Risk

Assessment


10/01Economic OutlooksPrivate Sector: Typical Audience

Customer Analysts

Characteristics: Time is available Moderate Degree of Technical Expertise Skeptical regarding forecast accuracy Little interest in technical details



Customer AnalystsNeeds: Timely forecast for their planning cycle Warning of adverse economic

developments In-depth analysis for briefing their senior

management Machine readable data for custom reports



Customer Analysts

Hardcopy Communication Design: Publication: twenty pages of in-depth

analysis plus executive summary Careful defence of assumptions In-depth tracing of causal links Careful assessment of risk


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Policy Simulations Understand the Audience Define the Message Understand the Tool Know the Material


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Policy SimulationsDefine the Audience

It is essential to tailor communication to the needs and expertise of the audience

Try to put yourself in the shoes of your audience


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Policy SimulationsGovernment Sector: Typical Audiences

Internal Senior Management Peers in Other Departments Often Confidential


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Policy SimulationsPrivate Sector: Typical Audiences Internal Senior Management Customers: Senior Management Customers: Analysts Media


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Policy SimulationsDefine the Message

Key messages are normally the impacts of the policy change

Status quo is a policy option and often provides the baseline for impact measurement

Provide Alternatives Analyze Risks to create boundaries around the

impact Be Sensitive to the Political Context


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Policy SimulationsUnderstand the Tool (I)

Macroeconomic models are the tool of choice to generate policy simulations

Other tools exist. The model is not a perfect reflection of

reality.


10/01Policy SimulationsUnderstand the Tool(II)

Econometric Models are aggregated and coarse; reality is disaggregated and detailed.

A careful understanding of the structure and dynamics of the model is crucial

This understanding is partly based on standard shocks

Modelling a policy initiative often requires adjusting existing equations


10/01Policy SimulationsUnderstand the Tool(III)

Avoid the use of judgement Watch for unintended consequences;

example: Canada doubles taxes on cigarettes and smuggling explodes

Markets work Try to anticipate surprises Provide alternatives


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Policy SimulationsKnow the Material

Be able to defend the modelling of the policy changes

Be able to trace the causal path from key assumptions to important outcomes

Be able to discuss risks with assigned probabilities

Buttress policy recommendations with evidence from other tools


10/01The Communications Strategy for Economic Outlooks at the Conference

Board of Canada (I)

Audiences Customers: Senior Management Customers: Analysts Media


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Audience: Customers, Senior Management

No time Risk Sensitive Low level of technical expertise Need outlooks to critique business plans

received from staff


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Audience: Customers, Analysts

Time is available for analysis Moderate level of technical expertise Need outlooks to prepare and update

business plans and brief senior management on latest developments

Some need data in a very timely fashion and in machine readable format


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Audience: Media

Work to immediate deadlines No time for analysis No technical expertise Need one key message delivered in a

fashion easily understood by the general public


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The Communications Strategy for Economic Outlooks at the Conference

Board of Canada (II)Communication Vehicles (Chronological Order) On-line data delivery Forecast Executive Summary delivered on-line Forecast Executive Summary mailed Outlook Publication mailed continued….


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Communication Vehicles (Chronological Order)

Press Release Technical Forecasting Seminar Economic Outlook Conferences


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Communication Vehicle: On-Line Forecast Data Delivery

Audience: More sophisticated analysts in government and working for large corporations

Needs fulfilled:- timely access to information- machine-readable data which

can be fed into an automated business planning process


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Communication Vehicle: Forecast Executive Summary Delivered On-Line

Audiences: a) More sophisticated analysts in government and working for large corporationsb) Senior Management with on-line expertise

Need fulfilled: timely access to summary description of the outlook


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Communication Vehicle: Forecast Executive Summary Mailed

Audiences: a) Analysts in government and working for large corporationsb) Senior Management

Need fulfilled: summary description of the outlook


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Communication Vehicle: Outlook Publication Mailed

Audience: -Analysts in government and working for large corporations

Need fulfilled: in-depth analysis of the outlook used to tune business plans at the sectoral level and justify business plans to senior management


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Communication Vehicle: Press Release

Audience: Media

Need fulfilled: ability to provide important information to their customers


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Communication Vehicle: Economic Outlook Seminars and Conferences

Audiences: Senior Management; Analysts; Media

Need fulfilled: ability to interact personally with senior Conference Board Staff


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Communication Resources at the Conference Board of Canada

Forecast Specialists On-line support staff Editors Layout designers Mailroom Spokespersons Media Relations Conference Support Staff


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Communication Training at the Conference Board of Canada

Writing Skills Presentation Skills Media Training


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An Example of an Outlook Presentation

Audience: Financial Planners - moderately sophisticated - need the outlook for planning purposes - need the ability to ask questions - risk sensitive

- special interest in interest rates and the exchange rate


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Key Messages About the impact of the terrorist attack About the probability of a full-blown

recession About the importance of Confidence and

the high degree of risk around the outlook


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Tragedy,Confidence & The FuturePlanning for a Very Uncertain 2002

CS Co-Op and CS Alterna Bank Strategic Planning RetreatSeptember 29, 2001

Paul M. DarbyDirector, Economic Forecasting


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What We Will Talk About Economic growth is very slow— but full-

blown recession very unlikely How will that affect your customers and

business? The importance of Confidence The outlook is risky


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Prospects Outside Canada 2002 Extreme uncertainty after terrorist attacks

U.S. slowdown a reality, but no full-blown “R” in 2001; growth strengthens in 2002

Japan remains mired in difficulties

Europe just holding its own


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Some Basic Facts About September 11, 2001 Terrorist Attack Huge loss of life will affect many thousands Total losses in the range of $60 billion, three

times L.A. earthquake or Hurricane Andrew Economic aid pledged so far will cover most

of the financial losses Service sector hardest hit with little recovery

of losses


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United States: Real GDP Growth(annual per cent change)

Sources: Regional Financial Associates; The Conference Board of Canada.

-1

0

1

2

3

4

5

6

92 93 94 95 96 97 98 99 00 01 02


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U.S. Consumer Confidence(1985=100)

Source: The Conference Board Inc.

85,0

95,0

105,0

115,0

125,0

135,0

145,0

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jne Jly Aug Sep


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Canada’s Outlook 2002 Highlights Modest growth of about 2.0 per cent Interest rates up Q3/02 onward; C$ weak Monetary and fiscal policy highly stimulative Negative risk is far higher than normal


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What is A “Full-Blown” Recession?Quarterly GDP Growth Rates—Canada 1989-1993

Source: The Conference Board Inc.

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

89:1 :2 :3 :4 90:1 :2 :3 :4 91:1 :2 :3 :4 92:1 :2 :3 :4


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What’s in Our Current Outlook?Quarterly Growth Canada 1999–2002

Sources: The Conference Board of Canada; Statistics Canada.

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

99:1 :2 :3 :4 00:1 :2 :3 :4 01:1 :2 :3f :4f 02:1 :2 :3f :4f


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Inflation Risk Rising in Late 2002

We reached full employment in 2001. But given the employment losses in recent months we are

now running under potential! As we bounce back, especially in 2003+, domestically induced inflation risk will rise. The currency will rise if

interest rate spreads have to be widened to reduce inflation concerns.


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Interest Rates (90-Day T-Bill) Quarterly 1991–02

Sources: Economy.com; CBoC; Statistics Canada.

U.S.

Canada

2

3

4

5

6

7

8

9

10

91 92 93 94 95 96 97 98 99 00 01 02


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Consumer Price InflationCanada 1992–01


Target for Core Inflation is 1 to 3 per cent

0.0

0.5

1.0

1.5

2.0

2.5

3.0

92 93 94 95 96 97 98 99 00 01 02


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Purchasing Power Parity

Exchange Rate 1992–02U.S. cents per Canadian dollar


60

65

70

75

80

85

90

92 93 94 95 96 97 98 99 00 01 02


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Real Export Growth—GoodsCanada 1991–02


-4

-2

0

2

4

6

8

10

12

14

91 92 93 94 95 96 97 98 99 00 01 02


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Real Government Spending on Goods and Services

Canada 1992–02


-2

-1

0

1

2

3

4

92 93 94 95 96 97 98 99 00 01 02


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Gains in Total Employment (000s)Canada January 1998 – August 2001


-30-20-10010203040506070

1998Jan

Apr Jly Oct 1999Jan

Apr Jul Oct Jan2000

Apr Jul Oct Jan-01

Apr Jul


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Unemployment Rate 1992–02


NAIRU

5

6

7

8

9

10

11

12

92 93 94 95 96 97 98 99 00 01 02


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Consumers’ Income Prospects

2001/02 PIT collections actually decline— “2001 is one of those rare moments in history where a huge dose of fiscal stimulus is actually

occurring at the exact point that it is most needed.” Also, real wages and salaries are

rising. Public sector pay administration takes a turn to “normal”.


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Provincial PIT Cuts, 2001 Budgets

NF 30.0 30.0 25.0 0.6PEI 10.2 14.3 14.3 1.1NS - - - -NB 20.0 25.5 8.5 0.3QC 1,000.0 1,133.0 1,167.0 1.4ON 1,782.5 955.0 1,035.0 0.8MB 49.5 97.0 41.0 0.5SK 145.9 170.9 46.7 1.0AB 181.0 864.0 - 0.7BC 50.0 1,350.0 1,500.0 3.4Total $3,269.1 $4,639.7 $3,837.5

2000 2001 2002 Cum./GDP’02


10/01Federal PIT Cuts (% of GDP) November 2000 Mini-Budget

NF 42.0 90.0 1.0PEI 12.0 27.0 1.2NS 67.0 147.0 0.9NB 88.0 192.0 1.4QC 764.0 1680.0 1.1ON 1476.0 3251.0 1.1MB 117.0 256.0 1.1SK 100.0 218.0 0.9AB 377.0 831.0 0.9BC 447.0 986.0 1.1Total $3,490.0 $7,678.0

2000 2001 Cum./GDP’01


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Real Disposable Income GrowthCanada 1992–02


-1

0

1

2

3

4

5

92 93 94 95 96 97 98 99 00 01 02


10/01Index of Consumer Attitudes Canada

1988:1–2001:3 S.A.(1991=100)

Source: The Conference Board of Canada.

80

90

100

110

120

130

140

88 89 90 91 92 93 94 95 96 97 98 99 00 01


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Real Consumption Spending Canada 1991–02


-2

-1

0

1

2

3

4

5

91 92 93 94 95 96 97 98 99 00 01 02


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Index of Business Confidence 1985:1 to 2001:3 SA (1991=100)

Source: The Conference Board of Canada.

Preliminary Data N=80

60

80

100

120

140

160

180

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01


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Real Business Investment Growth (Canada 1991–02)


-10

-5

0

5

10

15

20

25

91 92 93 94 95 96 97 98 99 00 01 02


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Real GDP Growth Rate Canada 1992–02


0

1

2

3

4

5

92 93 94 95 96 97 98 99 00 01 02


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Heading Into 2002 . . . Plan on the mood improving slowly

Consumer spending struggles to hold up Disposable income growth still good Business investment is improving a bit Government adds to economy


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Something to Think About in 2001-02 Slower US growth means little inflation risk in

short term even at “full employment” Short-term real interest rates are very low Modest employment gains in a tight “underlying”

labour market IT inventory and capacity still key risk elements


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Something to Think About in 2002

It’s Been a Very Tough Fall in 2001.

Business from U.S. customers, and in the hospitality industry and transportation industries

in Canada, has been very hard hit.

All the risk is on the downside at the moment related to military and security issues.


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www.conferenceboard.ca


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To Conclude…

Understand the Audience Define your Message Understand the Forecasting Tool Know the Material

The Conference Board of Canada 10/01 Communication Strategies for Economic Forecasts and Policy...

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