GDP flash estimates at T+30 Experience in France 15/01/2015

Overview of QNA in France 5 years of tests : an assessment Layout Overview of QNA in France 5 years of tests : an assessment Room for improvement Work schedule GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Overview of QNA in France GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Production process QNA present the fully integrated 3 approaches of GDP Expenditure approach (supply and use balances) Output approach (“industry” approach: Supply and use tables and input-output tables) Income approach: generation of income accounts by branches and sectors GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Production process Output approach Production, intermediate consumption and value added published For French QNA, disaggregated by a 48 industries classification (publication :17 industries) GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Expenditure approach (48 products disaggregation) Production process Expenditure approach (48 products disaggregation) Private and public consumption Gross fixed capital formation (disaggregated by institutional sector) Imports and exports (goods and services) Change in inventories GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Production process Income approach Quarterly sector accounts distinguishing households, financial and non- financial firms, general government, NPISH Compensation of employees Operating surplus and mixed income Taxes and transfers Gross disposable income and savings GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

What’s required by Eurostat : Publication calendar What’s required by Eurostat : GDP and demand components at T+60 Sector accounts at T+85 « GDP Flash » (without demand components) at T+45 What’s published by French QNA : « first results» at T+45 GDP and demand components « detailled results » at T+85 Revised GDP and demand components Sector accounts GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Production process Econometric method A large number of indicator series are collected Volume index of industrial output, - Sales of goods and services at current prices Price indexes… Input-output disaggregated at 48 products/industries Benchmark : 1 indicator serie for each operation & for each product An econometric relation is estimated between annual account series and annualized indicator series The relation is applied to the monthly indicator GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Compilation of Supply and Use Table (SUT) GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Estimation technique of the GDP A mix of the three approaches, the « construction » approach: Supply and use balance (SU) for « goods » : Built in the « production » approach and balanced on inventories Consumption of goods has no direct impact on GDP, only through trade margins and VAT. SU for « services » : Built in the « demand » approach, and balanced on production ; Only demand indicators (final consumption, GFCF and foreign trade has an impact on GDP. SU for « administration » : - Built in the « income » approach (production estimated bu the costs : salaries, intermediate consumption and fixed capital consumption). Same estimation method at T+45 and T+90 GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

At T+45, missing data need to be extrapolated At T+45, most indicators are available for the whole quarter : IPI, price indexes, planning permission, customs, balance of payments … When indicators are not available, they are extrapolated  : 3rd month of VAT indicators ; 2 last months of health services (from social security) ; Full quarter for telecommunications services (from regulation authority) … Unless these indicators are released sooner, a GDP estimate at T+30 requires a lot more of extrapolations. in some rarer cases (consumption of goods and consumption prices), 3 months of indicators are available at T+30. GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Main extrapolated indicators GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Missing data need to be extrapolated The extrapolation technique is the same than for T+45 estimates : let the ARIMAs speak and validate the result Modifications are « hand-made » when the Arima is at odds with what we know of the economic situation ; As this mean a lot of estimations need to be made, an automatic model selection program, based on a bayesian information criterium (BIC), has been developped. This approach is acceptable as long as the effect of an extrapolation error is limited  : For indicators with low volatility ; For the last month of a quarter (which contributes to 1/9th of the quaterly growth) ; Without too many indicators directly contributing to GDP in the construction approach. If those conditions are met for T+45 estimates, it is less clear in the case of T+30 estimates : More extrapolations are needed, for more volatiles indicators (last month of industrial production and customs, second month of VAT, etc.) GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

5 years of tests : an assessment 15 GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Assessment of the tests More extrapolations mean more revisions On the indicator itself On seasonal adjustment (-> on past and present) Tests enable to quantify those revisions 10 tests realised since 2008 Q4 Only during Q3 et Q4 (due to organisation constraints) Two « blind tests » at Q2 2013 and 2014 GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Assessment of the tests – GDP revision The first test and the two blind tests are to be analysed separatly GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Contributions to GDP revision – construction approach Main revisions are in services 2 months of extrapolation for the VAT indicators in consumption and GFCF GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Revisions of demand components Biggest revisions are in foreign trade Extrapolation of the 3rd month of customs (volatile) Revision is compensated by change in inventories GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Special cases – first test (2008 Q4) Revision was above average… …In a very special economic context (one of the biggest fall in GDP since 1949) In the USA, GDP has been revised down by 0.6 points (quaterly) between T+30 and T+45 In the « construction » approach, the revision mainly comes from goods SU balance GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Special cases – first test (2008 Q4) In the demand approach, GDP is greatly revised down The downfall in imports in December could not be forecast : after this first test, it seemed impossible to publish demand components à T+30 days. GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Special cases – blind test (2013 and 2014 Q2) Done during summer holidays (July) : everyone is not here at the same time ARIMA extrapolations are integrated without checking the results. Only the agregates are checked. No meetings for analysis and validation Revisions at T+45 : -0.13 in 2013, +0.07 in 2014 Revisions are above average They are due to GFCF and consumption in services -> VAT indicators GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Assessment of the french tests Mean absolute revision (MAR) between T+30 and T+45 : Inc. special cases : 0.07 point Exc. special cases : 0.04 point For comparison, MAR is 0.06 point between T+45 and T+90 (1991-2013) GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Assessment of the french tests GDP estimate seems good enough for publication But Demand components are more fragile Especially balance between foreign trade and inventories Good quality of demand components estimates is needed, to publish them with GDP at T+30 24 GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Room for improvement GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Way of improvment The validity of the ARIMA extrapolation need to be looked at every time Models are crude, and do not take into account available information like business and household surveys Can we use use these surveys to forecast the missing months of the indicators ? Series of tests have been run, but the results are disappointing GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Constraints The alternative method must : Be based on simple extrapolation models Limit the extra work needed (schedule is tight) Limit the extra number of series Take into account information on economic context - Through business and household surveys Outperform simple extrapolation using ARIMA - Tests are needed GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Dynamic regression Performances of ARIMA are compared with … … dynamic regression models forecasting monthly indicators (taken y-o-y) with balance of opinion from household and business surveys GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

« Out of sample » tests Example of « catering » : St. dev. of errors (2006-2012) : ARIMA 1.82 Régression 1.79 (-1,7 %) GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Results of tests Explanation: With regards to st. dev. of errors, performances of the regression models are worse or slighty better than simple ARIMA. In more than half of the cases (57%) , performances were worse Explanation: At monthly frequency, surveys are too noisy Surveys are more agregated than QNA So we decided to keep ARIMA models GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Other ways of improvment Get more timely information from the indicator we already use   Talks in progress with data producers (IPI, Customs, etc.) to receive information before their publication, based on the first firms that answered them Data will only be used if response rates are high enough, branch by branch For VAT indicators, possibility to publish sooner (T+55) : - tests has been run - would enable to use two months of data instead of one for T+30 estimates GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Work schedule GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Content of publication As of now, GDP is published at T+45 with demand and production breakdowns If publication at T+30, we would like to publish as much information GDP need more information to be interpreted Our readers are used to it It seems possible to do it Difficult to add a fourth publication (30/45/60/85) GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

A solution : no publication at T+45 ? A way to manage this is to publish at T+30/60/85 Need to have same quality of information at T+30 Work is needed on demand components T+60 would become more important As of now, additional data on sector accounts is only sent to Eurostat No publication to a broader audience Schedule of yearly account would need adjustment for publication of first quarter 34 GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

Conclusion GDP flash estimates at T+30 are robusts for the GDP … but demand components are more fragile The use of business and household surveys does not help to improve extrapolations of the 3rd months of indicators by ARIMA To improve estimates, we need to work with data producers to have information sooner Regarding work schedule, a fourth publication is impossible. But T+45 estimate may be skipped if T+30 is good enough Would mean a lot of adjustment of our time schedule (including yearly accounts) GDP flash at T+30 days – Task force meeting Den Haag 15/01/2015

GDP flash estimates at T+30 Experience in France Merci de votre attention ! Insee 18 bd Adolphe-Pinard 75675 Paris Cedex 14 www.insee.fr Informations statistiques : www.insee.fr / Contacter l’Insee 09 72 72 4000 (coût d’un appel local) du lundi au vendredi de 9h00 à 17h00