European Commission
Directorate General for Economic and Financial Affairs
The harmonised EU investment survey:
What can it tell us about investment
growth in the euro area?
Roberta Friz and Christian Gayer
Joint EC/OECD Workshop on Business and Consumer Surveys
12-13 November 2007, Brussels
European Commission 2007
1
Motivation
• Business investment is a key GDP component
• GFCF accounts for approx. 20% of euro-area GDP
• High volatility  significantly lager share of GDP
growth
• Since 1966: EC investment survey
• Representative samples useful information on
overall investment in industry sector
• Released before statistical data should also be
useful for forecasting
• But: few studies on the usefulness of the data
European Commission 2007
2
Outline
1.
2.
3.
4.
Overview of the EC Investment Survey
Descriptive analysis
Usefulness in forecasting
Conclusions
European Commission 2007
3
1. Overview of the EC Investment Survey
The investment survey is carried out twice a year :
•
•
in March/April (“spring”): percentage change in investment of the company
from year t-2 to t-1 and from year t-1 to t
in October/November (“autumn”): percentage change in investment of the
company from year t-1 to t and from year t to t+1
 four consecutive estimates of investment growth are
available for each year.
Example for year 2006:
First estimate
Second estimate
Third estimate
'definitive' estimate
Date of survey
Oct/Nov 2005
Mar/Apr 2006
Oct/Nov 2006
Mar/Apr 2007
Date of
publication of
survey results:
end-Jan 2006
end-Jun 2006
end-Jan 2007
end-Jun 2007
Eurostat data available at the time of survey results publication
First estimate 2006Q1
2nd estimate 2006Q3*
2nd estimate 2006Q4**
* 1st estimate available around end-Nov 2006
** 1st estimate available beginning March 2007
European Commission 2007
4
2. Descriptive analysis
The data:
•
Investment survey covers only the manufacturing sector
 therefore we choose equipment investment (metal
products, machinery and transport) as reference series
to approximate investment activity in the manufacturing
sector.
•
Equipment accounts for approximately 40% of total
investments and the two series are highly correlated
•
Focus is on nominal investment growth
European Commission 2007
5
Equipment investment growth and surveyed change of
investment in the euro area – nominal value
Equipment investments
Survey data (investment 'definitive' value)
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
19
85
20
15
10
5
0
-5
-10
-15
-20
6
15
5
0
-2 0
O ct-8 4
A p r-8 5
O ct-8 5
A pr -8 6
O c t- 86
A p r- 87
O ct-8 7
A p r-8 8
O ct-8 8
A p r- 8 9
O ct-8 9
A p r-9 0
O ct-9 0
A p r-9 1
O c t- 91
A p r- 92
O ct-9 2
A p r-9 3
O ct-9 3
A p r -9 4
O c t-9 4
A p r-9 5
O ct-9 5
A p r-9 6
O ct-9 6
A p r- 9 7
O ct-9 7
A p r-9 8
O ct-9 8
A p r -9 9
O c t- 99
A p r- 00
O ct-0 0
A p r-0 1
O ct-0 1
A p r- 0 2
O ct-0 2
A p r-0 3
O ct-0 3
A pr -0 4
O c t- 0 4
A p r- 05
O ct-0 5
A p r-0 6
O ct-0 6
Investment reported in each survey for the euro area –
nominal value
20
198 5
1 989
198 6
10
1 995
19 90
19 88
1996
199 4
-5
19 98
19 97
20 00
2 007
198 7
2006
1991
200 1
2 004
1 999
199 2
200 2
20 03
2 005
-1 0
1993
-1 5
7
Average revisions vis-à-vis the definitive survey estimate 1992 to 2006
Difference vis-à-vis definitive value
definitive value 3rd estimation 2nd estimation 1st estimation
Mar/Apr t+1
Oct/Nov t
Mar/Apr t
Oct/Nov t-1
Euro area
1.1
-0.5
2.7
2.1
Germany
-0.7
2.3
4.3
3.3
Spain
2.5
-2.2
3.2
6.5
France
-1.4
2.0
5.2
2.3
Italy
6.7
-8.1
-7.8
-5.3
Minus  previous estimate was lower by … pp than the
definitive estimate
Plus previous estimate was higher by … pp than the
definitive estimate
8
Actual versus estimated
Euro area
20
15
10
5
0
Ameco equipment inv Nominal
survey - definitive value
survey - 3rd estimation
survey - 2nd estimation
survey - 1st estimation
-5
-10
-15
-20
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Euro area
Germany
Spain
France
Italy
Difference vis-à-vis actual outcomes
Nat. Account definitive estim 3rd estimation 2nd estimation 1st estimation
Outocmes
Mar/Apr t+1
Oct/Nov t
Mar/Apr t
Oct/Nov t-1
2.7
-1.6
-2.1
1.2
0.6
0.9
-1.6
0.7
2.7
1.7
7.6
-5.1
-7.2
-1.9
1.4
1.7
-3.1
-1.1
2.2
-0.8
4.5
2.3
-5.8
-5.6
-3.1
Minus  underestimation
Plus overestimation
9
• The mismatch can partly be due to:
– different coverage of the survey (manufacturing
industry) and reference series (equipment)
– Revisions in the National Account data:
• Considering the years from 2000 to 2006, the mean
absolute error has been 0.68 pp and the RMSE 0.91
pp.
• In the period 2000 – 2006 the first releases have
always been revised upwards. The negative bias
amounts to -0.68 (mean error).
10
Direction of the changes and correlation coefficients
Percentage of correct directional changes indicated in the survey
Survey data
definitive value 3rd estimation 2nd estimation 1st estimation
Mar/Apr t+1
Oct/Nov t
Mar/Apr t
Oct/Nov t-1
Euro area
0.80
0.73
0.87
0.73
Germany
0.80
0.87
0.80
0.80
Spain
0.80
0.74
0.79
0.89
France
0.68
0.77
0.91
0.73
Italy
0.95
0.64
0.68
0.76
Correlation between investment survey data and actual investment
in equipment
Survey data
definitive value 3rd estimation 2nd estimation 1st estimation
Mar/Apr t+1
Oct/Nov t
Mar/Apr t
Oct/Nov t-1
Euro area
0.92
0.85
0.86
0.72
Germany
0.78
0.71
0.73
0.59
Spain
0.68
0.73
0.69
0.49
France
0.82
0.82
0.78
0.54
Italy
0.71
0.81
0.63
0.61
11
• Benchmark with other questions in the BCS
From Industry survey asked in January, April, July and October
– factors limiting production
• “none”, “insufficient demand”, “shortage of labour force”,
“shortage of material and/or equipment”, “financial
constraints” and “others”
– Assessment of current production capacity
• “more than sufficient”, “sufficient” or “not sufficient”
– Capacity utilisation
• quantitative figure reporting the percentage of full capacity
they operate at
12
Correlation between quarterly industry survey data
and actual growth in equipment investment
Euro area
Germany
Spain
France
Italy
October Industry Survey
Capacity utilisation Assesment of capacity Demand limiting productionEquipment limiting production
0.83
-0.83
-0.87
0.62
0.76
-0.74
-0.87
0.48
0.58
-0.65
-0.69
0.69
0.37
-0.49
0.22
0.33
0.57
-0.58
-0.33
0.48
Euro area
Germany
Spain
France
Italy
July Industry Survey
Capacity utilisation Assesment of capacity Demand limiting productionEquipment limiting production
0.80
-0.84
-0.81
0.72
0.81
-0.80
-0.77
0.56
0.48
-0.66
-0.72
0.74
0.21
-0.28
0.19
0.29
0.55
-0.58
-0.33
0.61
13
•
Signs of the correlation coefficients are correct
– Investment is negatively correlated with the factor "insufficient demand
limiting production” and with the “capacity assessment”
– The correlation is positive for the results obtained from the capacity
utilisation question and the other factors limiting the production.
•
For the euro area, correlation coefficients are high using October
Industry survey results:
• 0.83 with capacity utilisation
• -0.83 with the assessment on production capacity and
• -0.87 with "demand" as factor limiting the production
•
•
•
For Germany, high correlation coefficients with capacity utilisation as
reported in the July (0.81) and in the October industry surveys (0.76). In
addition, correlation is -0.87 with "demand" as factor limiting the production
in the October survey.
For Spain, coefficients with factors "demand" and "shortage of material
and/or equipment" with the July industry survey are -0.72 and 0.74,
respectively.
For France and Italy, correlation coefficients are lower than with the
investment survey
14
3. Usefulness in forecasting (explanatory
power)
•
•
•
•
Basic regression method
Correction for bias by using a constant
Augmentation of AR model by investment plans
Degree of improvement of fit over AR
European Commission 2007
15
Table 1: In-sample statistics, euro area
adj. R²
const.
p-value
invest. plan
p-value
AR(1)
0.11
1st plan
0.47
-0.81
0.606
1.24
0.0084
2nd plan
0.71
-0.07
0.939
0.80
0.0002
3rd plan
0.67
2.44
0.029
0.69
0.0006
definitive
0.83
2.18
0.010
0.77
0.0000
N=15
European Commission 2007
16
In-sample results: euro area
• Including 2nd plans improves R² to 0.71, slightly
lower for 3rd plans
• All survey vintages are Granger-causal
• Significant underestimation of investment growth
in t in the January and June releases of t+1
• Based on 16 yearly observations only (since
1992) purely indicative results
• 23 observations available for FR and IT
European Commission 2007
17
Table 2: in-sample fit France and Italy
adj. R²
France
Italy
AR(1)
0.06
0.05
1st plan
0.23
0.31
2nd plan
0.51
0.33
3rd plan
0.66
0.61
definitive
0.67
0.47
N=22
European Commission 2007
18
In-sample results: France and Italy
• Goodness of fit increases monotonously with
maturity of investment plans
• But: “definite investment plans” surveyed in t+1
(Mar/Apr) for t do not carry more information than
3rd plans (Oct/Nov)
• For Italy, explanation becomes even worse
General problem: in-sample statistics overstate
forecasting power
European Commission 2007
19
Out-of-sample forecasting
• Euro-area time series too short
• some indicative results for France and Italy
• Division of sample: initial estimation over 19852000, forecast for 2001
• recursive extension of sample until 2006, forecast
for 2007
• RMSE to reflect forecast uncertainty over 20012007
European Commission 2007
20
France
16
16
16
EQUIP_NOM
PROG_1
EQUIP_NOM
EQUIP_NOM
PROG_2
12
12
12
8
8
8
4
4
4
0
0
0
-4
-4
-4
-8
-8
-8
86
88
90
92
94
96
98
00
02
04
06
PROG_3
86
88
90
92
94
96
98
00
02
04
86
06
88
90
92
94
96
98
00
02
04
06
Italy
20
20
EQUIP_NOM
20
PROG_1
EQUIP_NOM
PROG_2
EQUIP_NOM
15
15
15
10
10
10
5
5
5
0
0
0
-5
-5
-5
-10
-10
-10
-15
-15
86
88
90
92
94
96
98
00
02
04
06
PROG_3
-15
86
88
90
92
94
96
98
00
02
04
06
86
88
90
92
European Commission 2007
94
96
98
00
02
04
21
06
Table 3: RMSEs for France and Italy
RMSE
France
Italy
1st plan
3.53
3.60
2nd plan
3.63
4.62
3rd plan
3.32
2.43
N=7 (2001-2007)
European Commission 2007
22
Out-of-sample results (1)
• RMSEs computed with respect to final NA figures
• RMSE of first NA estimates with respect to final
estimates is 0.91 for the euro area (total business
inv.), likely higher for individual MS
• Second investment plans perform worse than first
• Superiority of third investment plans, esp. for IT
• Forecasts look reasonable
• Benchmark??
European Commission 2007
23
Out-of-sample results (2)
• Commission’s Autumn Forecast, iterative-analytic,
produced in October, published early November
• i.a. forecast for real growth in equipment
investment in t+1 (amplitude and general pattern
very close to nominal growth)
• RMSE over 2001-2007: 2.81 (FR) and 4.89 (IT)
• Simple regression using 3rd investment plans:
3.32 (FR) and 2.43 (IT)
Comparable or even superior accuracy (IT)
But: results are released in late January only
European Commission 2007
24
Summary of forecast evaluation
• Evidence for usefulness in forecasting is mixed
• High in-sample explanatory power
• But: low benchmark (past investment, low
autocorrelation)
• Many potential macroeconomic/survey data that
might encompass info of investment survey
• Out-of-sample: indication of usefulness for
forecasting, but results are needed earlier
European Commission 2007
25
Conclusions and possible improvements
 Investment survey contains useful information
 For structural analysis and for forecasting
 But data are available very late
 Release the results earlier?
 Survey covers manufacturing industry only
 Extend the survey to other sectors?
 Quarterly survey would allow estimating quarterly
investment growth (see INSEE)
 Increase the frequency (4 time per year)?
European Commission 2007
26