DBS GDP Nowcasts
GDP Nowcast is best viewed as an estimate of real GDP growth based on available economic data for the current quarter and forecasts of explanatory variables for the remaining term. Using this technique, we estimate GDP growth rate for China, India, Indonesia and Singapore.
- Nowcast models use up-to-the minute data to constantly update our estimate of economic activity. Using this approach, we can call the GDP of an economy long before national accounts data are released.
- We first isolate a set of high-frequency variables that are good statistical proxies for various components of GDP.
- Second, an autoregressive forecasting framework is used to fill in the data not yet available. As the quarter progresses, actual data replace forecasts and the Nowcast begins to approximate GDP.
- Third, we estimate the momentum of these variables though a traditional mean-variance approach.
- Fourth, the normalized variables are converted to a composite score of quarterly activity. Optimized z score is the weighted average of the 3mma of the z score of annual growth rates of high frequency variables. To calculate optimized composite score, each variable is weighted by its coefficient estimate obtained in a regression, where GDP is the dependent variable.
