Insights #9: Can our Economic Profit, ICR, and Z’’-Score variables improve key macroeconomic forecasts for Switzerland? A tentative application
In his recent remarks at the ECB Forum Alfred Kammer from the IMF admitted that “forecasting is a humbling process” and that more granular bottom-up data may be needed. Our Crux of Capitalism database can contribute here. In the Swiss context, we show that our firm-level metrics on economic profits and corporate distress may be valuable leading indicators for macroeconomic variables, which can improve key economic forecasts. The mean absolute predication error (out-of-sample) in our preferred forecast model for real Swiss GDP growth, for example, drops by 45%.