Electricity Consumption Best Indicator for Industrial Activity
Bavaria’s industrial electricity consumption is the best metric for predicting the state’s industrial production in a given month. This is the finding of a research project carried out by the ifo Institute on behalf of the Bavarian Ministry of Economic Affairs. “Here we’ve found really reliable data that lets us predict a key economic pacesetter at the state level much earlier than before,” says ifo researcher Robert Lehmann. “During the coronavirus crisis, this kind of real-time data was sorely lacking.”
Currently, the correlation between the business cycles of electricity consumption and of industrial production in Bavaria is 0.79; a perfect match would be represented by a value of 1.0. “Severe recessions and subsequent recoveries can be dated with particular accuracy,” Lehmann says.
The ifo Institute researched the period 2008–2020. “This makes data on electricity consumption in Bavaria a valuable addition to already available data, such as the ifo Institute’s surveys, and means it could become a fixed part of future regional economic reporting.”
But it is also true that all indicator lack the power to predict what will happen the following month. That means electricity data trails the ifo business expectations in terms of forecasting accuracy for Bavarian manufacturing.
Publication
Economic and Business Cycle Analyses with Electricity Consumption Data
ifo Institut, München, 2022
ifo Forschungsberichte / 129
