The Macroeconomic Environment Forecasting Engine is a system of software algorithm to forecast macroeconomic environment and its constituents. It is build on R, a software environment for statistical computing and graphics.
In contrast with typical textbook models or economic theories, this large-scale forecasting engine use:
- Voluminous economic data
- Fundamental knowledge of economics derived from stylized facts
- Econometrics and machine learning forecasting techniques
The Engine has repeatedly delivered fairly reliable forecast over years (barring 2020-21). For instance, as per the advance estimate of GDP by CSO, Govt. of India released in January 2021, GDP for 2021-22 is likely to grow by 9.2%. The projection by the Macroeconomic Environment Forecasting Engine was close to this. The engine had forecasted 9.3% growth for 2021-22 in March 2021 when the highest probability of GDP growth has been assigned to the range 11.0 to 11.4% by the panel of forecasters (as per RBI April 2021 survey).The Forecasting Engine is capable to generate a year ahead signal with reasonable accuracy. An accuracy check on the forecasting capability of the Engine has been run on the pre-pandemic swing in the business cycle. It is shown in the figure below
In December 2021, it marginally revised its GDP growth forecast for 2021-22 to 9.0% from its earlier projection of 9.3% . The Forecasting Engine highlighted the economic trends that may evolve in 2022-23. A few key trends are as follows:-
-Urban India will be the major driver for economic growth
-Interest rate and system liquidity to remain pro-growth
-Inflation to gradually turn benign
-Investment climate to get better but decisive turnaround less likely
-Headwind to come from the external sector
The 2023-24 GDP forecast is given in the link below