At SGC, we use a breadth of indicator models for facilitate our forecasting.  The near-term assessment also takes particular account of projections from a suite of statistical models using high frequency indicators to provide estimates of near-term quarterly GDP growth, typically for the current and next quarter. This analysis uses short term economic indicators to predict quarterly movements in GDP by efficiently exploiting all available monthly and quarterly information. These models typically combine information from both “soft” indicators, such as business sentiment and consumer surveys, and “hard” indicators, such as industrial production, retail sales, house prices etc. and use is made of different frequencies of data and a variety of estimation techniques. The procedures are relatively automated and can be run whenever major monthly data are released, allowing up dating and choice of model according to the information set available.

The most important gains from using the indicator approach are found to be for current-quarter forecasts made at or immediately after the start of the quarter in question, where estimated indicator models appear to outperform autoregressive time series models, both in terms of size of error and directional accuracy. The main gains from using a monthly approach arise once one month of data is available for the quarter being forecast, typically two to three months before the publication of the first official outturn estimate for GDP. For one-quarter-ahead projections, the performance of the estimated indicator models are only noticeably better than simpler time series models once one or two months of information become available for the quarter preceding that being forecast. Modest gains are nonetheless to be made in terms of directional accuracy from using the indicator models.

While SGC’s forecasts are built as the aggregation of individual country import and export forecasts, additional tools are used to assess the short term evolution of world trade and its consistency with the GDP growth projection.  Firstly, indicator models to forecast world trade in the short term have been developed from the techniques used for short term forecasting of GDP growth to allow the incorporation of the most recent information from key monthly trade indicators.