Indicators of industry and their prediction abilities of German business cycle

Abstract

Industry forms an important part of the German economy and its development has a significant impact on the overall economic cycle of the country. The aim of the contribution is to identify industry indicators that would be able to predict the future development of the economic cycle in Germany. For the purposes of creating a composite indicator, the predictive capabilities of 170 indicators from various areas of industry for the quarters 2000-2022 from the European Commission database were examined. The leading capabilities of the indicators were investigated using methods such as the Hodrick-Prescot filter to select the cyclical component of the time series and cross-correlations using the Pearson coefficient to determine the relationship to the economic cycle of Germany. The industry indicators that have the highest level of predictive ability in relation to Germany's GDP include Employment expectations over the next 3 months, Assessment of the current level of stocks of finished products, Competitive position on foreign markets inside the EU over the past three months and an Industrial confidence indicator.