Reliability of data in economic forecast

Policy makers use data and analytics to forecast key economic indices like GDP, inflation, and others. The use of data involve technology that helps in putting together information that is reliable and could be tested for reliability using Jackson Holes Economic Symposium speech of Jeroeme Powell.

As far as Powell is concerned, evidence data to adjust key economic dynamics have 3 key takeaways, the third being from the Nigerian local context.

– An objective to push down inflation

– Keep restrictive policies to make sure this Inflation rate goes down regardless of the consequences.

– Asides the meta data, which he shared the basic concern is the U.S. economy and not the spill over effect with trading partners like Nigeria.

There was a research conducted by the CBN which studied the conventional and unconventional monetary policies of the U.S and its spill over effect on the Nigerian economy and it was concluded that every major shock experienced by the U.S economy has a spill over effect on Nigerian economy. We can see the past administrations make attempts to build to build self sufficiency to backward integration with the U.S. through having local content laws to entrench sustainability. This shock for example the Russian Ukraine war affecting the UN, data signals are clearly saying will continue to affect Nigeria negatively.

What to make from focus on core Personal Consumption Expenditure, PCE stripping out more volatile food and energy items? The Federal Reserve Chair specifically took out the PCE (Personal Consumption Expenditure) data points that are influenced by global factors. According to him, they gave misleading signals hence he kept his focus on the raining core PCE factors like goods, and Housing and non-Housing services. In Data Science its normal to do dimensionality reduction when you have data that have meaningless or unpredictable impact. The problem is the removal of those two factors, i.e. food and energy with little or no interest in the trading partners with the U.S. who are assigned to the bilateral trade and framework agreement with the U.S. that is mutually signed up for, the concern becomes where do we stand in Africa. Where is the data that we can use to carry out activities.

The IMF gave a report that the growth rate of Nigeria will be 2% in 2022 and 2023 and the Nigeria Bureau of Statistics gave a more robust growth rate estimation of 4.2% in 2022. In Data Analysis this is huge difference. As we observed in 2022 the growth rate could have been better forecasted based on the most accurate value of data which speaks for itself.

If we are to speak of the learning curve from what Jereome Powell is doing with emphasis on the data there in the U.S. and bring that home here, we talk about GDP data that came out in 2023, revision of unemployment figures, e.t.c., we begin to wonder if data is supposed to drive policy in an unbiased fashion.

Is data supposed to drive policy in an unbiased fashion?

100 percent yes. There is no way in this age and time you are supposed to make decisions without concrete data evidence. Data could give you descriptive analytics describing events, predictive analysis predicting the future, and it could give you prescriptive analytics helping you decide as well as fix those things predicted.

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