Economic Forecasting

Cadence Economics has a range of economic forecasting capabilities. These capabilities are underpinned by our econometric and model based forecasting and scenario analysis experience.

Econometric Based Forecasting

Econometric analysis and forecasting core business for Cadence Economics. Our clients draw on our expertise and experience for their bespoke forecasting requirements. Our approach combines the application of statistics and economic theory to the empirical measurement of relationships. We use econometric methods to understand the drivers of industry, determine the key factors influencing the growth path of economic variables and empirically estimate the relationship between characteristics of interest.

For example, Cadence Economics recently prepared forecasts of airport traffic for a consortium bidding for a 50 year lease for Port Hedland International Airport. There forecasts were conducted on a 'reliance basis', meaning that the consortium (and its debt and equity investors) could rely on the forecasts in a legal sense in pricing their binding bid for the airport, with the associated level of accuracy and professional competence that would be expected in those circumstances.

Economic Model Based Forecasting

Our in-house computable general equilibrium (CGE) model provides us with an ideal tool for economic forecasting at the global, national, state and sub-state levels. The advantage of forecasting with a CGE model is it imposes the necessary rigour to ensure internal consistency and that the appropriate industry and regional linkages are captured.

Cadence Economics updates its global economic model each quarter following the national accounts release, and submits its Consensus Forecast poll in the middle of that month. We have applied our CGE model to a number of forecasting exercises. For example, we undertook a long-range global economic growth forecast for Rio Tinto including developed, newly industrialised and developing countries, paying particular attention to China and other key developing countries based on the development and application of a convergence model.

At a more granular level, we have applied our forecasting to a range of issues such as energy demand and associated greenhouse gas emissions and estimating the demand for labour and skills in sectors such as resources and tourism.

Scenario Analysis

Scenario development can be a powerful analytical tool for understanding uncertainty. Scenarios provide an opportunity to explore different possible futures, and consequently new risks and opportunities facing industries, sectors and economies as a whole. Given its flexibility, CGE modelling is ideally suited to scenario analysis allowing us to test key assumptions underpinning economic forecasts. We have been involved in several scenario analysis studies using our modelling framework.

For example, the economic modelling for Rio Tinto mentioned above also considered a range of scenarios considering key factors driving global growth at the time. Apart from a base forecast, we developed a suite of growth scenarios to 2050 considering long run growth determinants like working age population, productivity performance (and convergence) and regional-specific characteristics such as the strength of institutional structures, specifically focussing on China.

We also undertook a major forecasting and scenario study of the NSW economy over the period to 2020 considering a base forecast of what the major changes likely to occur in the NSW economy over the period, then examining four megatrends: the transition to a carbon constrained future; the rapid development of the digital economy; demand and competition from emerging economies - China and India; and an ageing and growing population.

In a foresighting study for the City of Sydney the model was employed to demonstrate the future growth prospects, to 2030, under a range of scenarios. In a similar long-range foresighting study for the Hunter Valley we assessed the impact of increased labour supply, enhanced transportation linkages and moderating coal price forecasts.