Is the PMI a reliable indicator for nowcasting euro area real GDP? – Beragampengetahuan

Gabe de Bondt and Lorena Saiz in this short ECB note:

The euro area composite output Purchasing Managers’ Index (PMI) tends to be strongly correlated with real GDP growth (Chart A). 

The composite output PMI is a diffusion index, which measures the sum of the percentage of month-on-month “higher” output responses and half the percentage of “no output change” responses.

The PMI survey output question asks about the actual unit volume of output this month compared to the previous month. It indicates the degree to which output changes are diffused throughout the panel of respondents and has a no-change benchmark of 50. A simple PMI-based rule of thumb, hereafter referred to as the PMI-based tracker rule, calculates euro area quarterly real GDP growth as 10% of the quarterly average level of the composite output PMI from which a value of 50 is subtracted. This rule-of-thumb exhibited a good nowcasting performance during the pre-coronavirus (COVID-19) period.

Post-pandemic, the correlation has weakened a bit but still the PMI works as a reliable indicator for forecasting GDP.

This entry was posted on February 16, 2024 at 4:26 pm and is filed under Academic research & research papers, Economics – macro, micro etc, Financial Markets/ Finance. You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.