Foreign PMIs: A reliable indicator for exports?

Sandra Hanslin and Rolf Scheufele

Issue
2016-01

Pages
27

JEL classification
F14, F17, C53

Keywords
Business tendency surveys, mixed frequencies, nowcasting, forecasting, MIDAS, exports

Year
2016

Foreign economic activity is a major determinant of export development. This paper presents an indicator for now- and forecasting exports, which is based on survey data that captures foreign economic perspectives. We construct an indicator by weighting foreign PMIs of main trading partners with their respective export shares. For two very trade exposed countries (Germany and Switzerland) the paper shows that the indicator based on foreign PMIs is strongly correlated with exports (total as well as goods exports). In an out-of-sample forecast comparison we employ MIDAS models to forecast the two different definitions of exports. We document that our export indicator performs very well relative to univariate benchmarks and relative to other major leading indicators using hard and soft data.