ifo Institute Develops New Forecasting Model for the German Economy

The ifoCAST is a fully automated approach that generates a purely technical, model-based forecast built on past patterns. “Automated model forecasts of this kind have been available in the US for some time. We are now offering this service for Germany as well,” Wollmershäuser says. The model forecasts are based on 21 key economic indicators, which are selected beforehand from around 300 indicators using a computer-aided procedure. Among these 21 indicators are the ifo business expectations for manufacturing, the ifo Export Expectations, and industrial production. They cover a broad swathe of economic activity in Germany and have provided important signals for economic development in the past.

For the years 2011 to 2019, ifoCAST demonstrated a high degree of forecasting power and delivered significantly fewer forecast errors than a number of comparable models. In the current economic crisis, however, forecast uncertainty and forecast errors increased significantly. The extraordinarily large economic fluctuations that accompanied the introduction and reduction in government infection control measures are unprecedented in historical comparison. Such crises therefore pose particular problems for all statistical models in which forecasting quality is derived from historical contexts. This requires additional assessments of the current situation by economic experts. “The ifo Economic Forecast is characterized by the interplay of modern statistical methods with the knowledge of numerous ifo experts. This means there may well be differences between the ifoCAST and the ifo Economic Forecast,” Wollmershäuser explains.

Forecasts with ifoCAST are published twice a month on the ifo website at: https://www.ifo.de/en/ifoCAST