Abstract
In this study, we systematically evaluate the potential of a bunch of survey-based indicators from different economic branches to forecasting export growth across a multitude of European countries. Our pseudo-out-of-sample analyses reveal that the best performing indicators beat a well-specified benchmark model in terms of forecast accuracy. It turns out that four indicators are superior: the Export Climate, the Production Expectations of domestic manufacturing firms, the Industrial Confidence Indicator, and the Economic Sentiment Indicator. Two robustness checks confirm these results. As exports are highly volatile and turn out to be a large demand-side component of gross domestic product, our results can be used by applied forecasters in order to choose the best performing indicators and thus increasing the accuracy of export forecasts.
Highlights
Exports are one of the most important demand-side components of gross domestic product (GDP)
We find four indicators that produce, on average, the lowest forecast errors across European countries: the Export Climate provided by the German ifo Institute, Production Expectations of manufacturing firms, the Industrial Confidence Indicator, and the Economic Sentiment Indicator
Disaggregated GDP forecasts are seen in the academic literature as more accurate than direct predictions, especially in the short run
Summary
Exports are one of the most important demand-side components of GDP. Fiorito and Kollintzas (1994) find for the G7 that exports are procyclical and coincide with the business cycle of total output. Especially unbiased export forecasts can, ceteris paribus, significantly reduce forecast errors of GDP.. We exclusively focus on exports and apply a forecasting competition between a large set of survey indicators for a multitude of European countries. Our main aim is to find out whether a superior survey-based indicator exists that works very well in forecasting export growth of different European countries. We find four indicators that produce, on average, the lowest forecast errors across European countries: the Export Climate provided by the German ifo Institute, Production Expectations of manufacturing firms, the Industrial Confidence Indicator, and the Economic Sentiment Indicator
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