Forecasting Industrial Production

Abstract

In February and August each year the National Institute publishes forecasts of growth in output for 24 separate industrial sectors which together comprise the index of industrial production. The forecasts are based mainly, though not entirely, upon macro-forecasts prepared by the Institute on the usual basis of assuming no change in government policies. This article contains a description and some tests of the econometric procedure used to derive the industrial forecasts from those yielded by the macro model. It must be emphasised, however, that the econometric procedure used to prepare the industrial forecasts represents only the first stage of a two-part method which yields the forecasts finally published in the Industrial Production chapter of the National Institute Economic Review. Although based upon the econometric forecasts, the final predictions incorporate adjustments made at the second stage of the procedure when up-to-date information on capacity constraints, strikes, tariffs and other factors is taken into account. In addition, adjustments may be necessary in the actual forecasting situation to ensure that the sum of the component forecasts adds up to the aggregate industrial production forecast (see page 61).