A nowcast for Australia's GDP growth in 2014
One of the challenges of economic forecasting is the availability and reliability of data on the current state of the economy. National accounts data in Australia is released more than two months after the end of a quarter and is frequently revised many months later. To improve knowledge of the current state of the economy, nowcasts have been developed by economists. These are based on inferences from other data, such as labour market surveys, which are more timely.
Nowcast models have been developed by foreseechange. These models cover retail turnover, household consumption and GDP, all in terms of volume growth.
The models are designed to provide a short-term forecast of growth in the current financial year in early December and a nowcast for the current financial year in June. The models also indicate future growth assuming that there are no major changes in economic conditions.
The models are based on three surveys. One is the foreseechange consumer pulse survey which measures consumer willingness and ability to spend. Measures from this survey have statistically significant correlations with retail turnover, household consumption, and GDP. This survey has been conducted at least twice a year since 2003 and the last survey update was in November 2013. As it is based on consumer surveys, we can analyse the data by demographics which provides insights into behaviour and some ability to predict the future. For example, the major factor which has caused the long slump in retail sales growth since 2010 is an increased determination for consumers to save money. In the November survey, we asked what items were being saved for and when saving targets were expected to be achieved. The responses suggest good potential for a lift in retail sales volume growth and a more first-home buyer demand during 2014. See our separate Consumer Pulse report for details.
The two other surveys are conducted by the Australian Bureau of Statistics (ABS). One is the monthly labour force survey and we have found that employment growth is correlated with household spending growth in some categories and with GDP growth. The other is the quarterly survey of expected private new capital expenditure, which is correlated with GDP growth.
The current nowcast indicators, coming as they do from three independent surveys, are a diverse but concise set. The models will continue to be improved as new nowcast indicators are identified.
In addition to a prediction of GDP growth, the Australian Economic Outlook for 2014 report provides scenarios - plausible futures - for GDP growth. These range from growth of 2% or less to 3% or more based on a range of assumptions. These are important for contingency planning.
The detailed Australian Economic Outlook report is available at the foreseechange online shop.