Wednesday, October 07, 2015

The latest industrial production statistics have been released, and show growth of 1.9% over the year to August. The seasonally adjusted figures also show an increase of almost 1% over the month. This seems very encouraging.

Applying my neural network forecasting model to these data suggests that the recovery in industrial production may continue for a few months, but there are warning signs that it may not be sustained beyond that.

The model on which these forecasts are based is very simple and does not include information about policies that are known to be in the offing. We know, however, that fiscal retrenchment is set to toughen over the coming period. These forecasts suggest that the economy, looking ahead, is somewhat more fragile than it has been over the last year, and that caution should be exercised in judging the desirable speed of further fiscal contraction.