Forecasting the GDP Growth in Pakistan: The Role of Consumer Confidence

Abstract

This paper investigates whether consumer confidence improves the prediction of GDP growth over what are popularly construed as fundamental economic variables. We use monthly data concerning Consumer Confidence Index (CCI) and its sub-indices to forecast GDP growth for Pakistan. Employing a set of univariate and multivariate models and comparing their forecasting performance against the Naïve mean model, we find that adding the consumer sentiments with fundamental economic variables improves the forecast of GDP growth. Vector autoregressive model with current economic conditions index and economic fundamentals, we find, performs the best. The results have potential policy implications in terms of tackling unemployment and inflation, for economic growth stimulation.