A PMI-Based Real GDP Tracker for the Euro Area
Real-time evidence for the euro area shows that a tracker for real GDP growth using only the Purchasing Managers’ Index (PMI) composite output is of similar accuracy for the final GDP release as the first GDP release. No signs of instability—except during the 2008/09 crisis—in this tracking performance are found. This is surprising given the small size of the underlying PMI panel. From a closer look at what is driving this outstanding track record, seven conclusions emerge: (i) the level of and change in the PMI composite output explain one-third of the GDP revisions; (ii) later available information is more accurate; (iii) services are key; (iv) firm size breakdown is valuable; (v) export status breakdown creates only noise; (vi) aggregated euro area PMI track record is not consistently related to a particular country; (vii) take firm defaults into account during very bad times. These findings imply that PMI surveys are not only valuable for analysts and policymakers as a timely and reliable GDP tracker, but also for statisticians to potentially improve the accuracy of the first preliminary flash estimate of euro area real GDP.
KeywordsGDP nowcasting Survey indicators Real-time analysis GDP revisions Euro area
JEL ClassificationE32 E37
The views expressed are those of the author and do not necessarily reflect those of the European Central Bank. I thank the editor Michael Graf and anonymous referees, whose comments helped to improve this report. Comments from Heinz Dieden, Stanimira Kosekova and Richard Morris are also appreciated. I acknowledge Heinz Dieden, Iskra Pavlova and Anca Florina for providing real-time data on the PMI and Florian Tröscher and Richard Willis from IHS Markit for sharing PMI data by firm size and export status.
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