Yesterday the DIW Berlin published their most recent short-term outlook in form of the DIW Economic Barometer, the institute’s flash indicator of the state of the German economy, for Q3 ’15. The indicator is continuously updated based on the most recent data, this time as of September 30. The overall indicator is a unitless index that is scaled to have unconditional mean of 100 (signalling normal circumstances), where smaller values signal below-average economic conditions and higher values mean above-average conditions. Historically, a value of 100 was on average associated with a q-o-q real GDP growth of 0.3%. The most recent value of the indicator is for Q3 is roughly 105 points, i.e. indicating conditions that are mildly above average.
This is also slightly higher than in the previous months, where the indicator for Q3 was 103.8 points. Still, the indicator is slightly down from its Q2 value of around 107. The team at DIW thus sees a good chance that Q3 growth might pick up again a bit climbing from 0.4 to 0.5%.
Considering the sectoral decomposition of the different contributions to the overall indicator, it becomes clear that primarily the service and labor market data (shaded in dark grey and grey) have been driving the positive trend in the indicator. This has been the recurrent theme over the course of the whole year basically. Only in the second quarter the industrial sector (green bars) chipped in an additional 1.1 index points to drive the index to its peak at around 107, but otherwise service and robust employment data were the main drivers.
With the latest quarterly value again estimated above the neutral level of 100 points, the Barometer continues a quite remarkable streak of above-average values. In fact, if one uses the interactive chart at the DIW site to zoom into the values that followed the crisis in 2009, it becomes clear that economic conditions have been above average ever since the second half of 2013.
Only in 2012, and very briefly in 2011, conditions worsened to en extent that they were below-average. Approaching the second half of 2013, the indicator entered the current streak of continuously positiive (i.e. above average) values. It therefore appears that despite some headwinds, e.g. in form of the economic weakening in China, the German economy is in a very robust shape with only little indication of a downward trend in the near future.
As always, eee here for the full discussion with interactive charts and more data (in German) at the DIW Berlin website. The construction of the index is documented here, FAQs are answered here.
On August 26 my former colleagues at DIW Berlin published Q3 ’15 value of the institute’s flash indicator of the state of the German economy. The overall indicator is a unitless index that is scaled to have unconditional mean of 100 (signalling normal circumstances), where smaller values signal below-average economic conditions and higher values mean above-average conditions. Historically, a value of 100 was on average associated with a q-o-q real GDP growth of 0.3%.
With a current value of 103.8 the indicator is slightly down from its Q2 value of around 107, but still above its neutral level of 100. In the previous quarter the team at DIW correctly predicted that q-o-q growth would amount to 0.4% in Q2 ’15 and despite a slightly weaker index, they remain confident that Q3 growth won’t be much different.
While the quarterly index is the headline index of the Barometer, it is always worth to take a look at the monthly series. The Barometer is based on monthly data and in fact the primitive index behind the Barometer is the monthly index that is aggregated using the Mariano and Murasawa (2003) pattern to form the quarterly index. I like to look at the monthly index, because it often can provide a more timely indication of the current trend (upward, downward or sideways), even though it is much more erractic.
If you consider the development over the past two years (beginning January 2013), the index began a gradualy hike towards a peak in January 2014 and subsequently followed a very mild downward trend. In 2015 the index has been less erratic than in the previous year, but it nonetheless appears to continue to gradually decrease. Note however that the neutral level of the index is at 33 and that it still remains above that level with around 35 points in August (the September prediction is roughly neutral with 33 point something).
See here for the full discussion with interactive charts and more data (in German) at the DIW Berlin website. The construction of the index is documented here, FAQs are answered here.
Since I was involved in developing the econometric model underyling the DIW Economic Barometer, I continue to follow how well it captures current developments. Last Friday (August 14) was another opportunity to juxtapose the indicator and the data. The first official number for Q2 2015 GDP growth from destatis is 0.4%. The econometric model underlying the DIW Economic Barometer indicated roughly this number. While the indicator is a unit-less index not tied to a specific value for GDP growth, my former colleagues put a price tag on the Q2 value of the indicator based on their own expertise that was 0.5%. Not bad I’d say!