Westpac launches "Nowcast" model for real-time GDP insights
Westpac NZ has unveiled its GDP nowcasting model, a tool designed to provide timely updates on New Zealand’s economic growth by tracking real-time data.
Unlike traditional GDP forecasts, which rely on delayed quarterly figures, the nowcast offers a faster, data-driven snapshot of current economic conditions.
Michael Gordon (pictured above), Westpac senior economist, explained the purpose behind the new model.
“A nowcast differs from a forecast in that it applies not to the future, but to the current period…,” Gordon said. “It’s largely a data-driven exercise, rather than being based in theory or an understanding of the structure of the economy.”
Westpac’s nowcast for the September quarter GDP, due for release on Dec. 19, stands at -0.3%, closely aligning with their official forecast of -0.2%.
Meanwhile, early data for the December quarter suggests a modest return to growth at +0.2%, reflecting tentative optimism driven by lower interest rates.
What is a GDP Nowcast?
Traditional GDP figures come with a significant delay – up to 12 weeks in New Zealand – creating a lag in understanding economic trends. Westpac’s nowcast model bridges this gap by analysing 26 key indicators, including:
- Hard data: Stats NZ figures reflecting actual activity levels.
- Soft data: Confidence surveys that signal economic direction.
- Price data: Financial market prices with predictive power.
The nowcast synthesizes these indicators into a single “common factor,” offering a clearer, up-to-date picture of GDP movements.
How the Nowcast has performed
Westpac’s nowcast model has successfully identified major economic turning points, including the 2008-09 financial crisis and recent recessionary periods since late 2022.
The tool also highlighted short-lived “headfakes,” such as mid-2023’s temporary dip in high-frequency data that prompted early interest rate cuts.
The model’s real-time performance during the June 2024 quarter demonstrated its accuracy, settling at -0.4%, compared to an actual outcome of -0.2%. This minor discrepancy stemmed from unexpected strength in manufacturing, which the model did not incorporate.
Comparing the Nowcast to other models
While global nowcasting models like the Atlanta Fed’s GDPNow focus on individual GDP components, Westpac’s approach reflects the limited availability of high-frequency data in New Zealand.
Locally, the GDPLive tool by Massey University and the Treasury’s monthly activity index also provide GDP insights but differ in methodology and timeliness.
Gordon emphasised the nowcast’s role as a complement to official GDP forecasts, offering a dynamic guide to economic risks and trends.
“The nowcast will tend to inform our official view… It’s best viewed as a guide to how the risks are developing around our forecast as new information arrives,” he said.
Early signs for growth in 2024
Looking ahead, Westpac’s initial nowcast for the December quarter suggests a modest growth rate of +0.2%, signaling a potential economic rebound.
However, Gordon noted a tug-of-war between optimistic confidence surveys and subdued activity measures, which will influence the overall trajectory.
With real-time updates available in Westpac’s Weekly Economic Commentary, the nowcast model offers a valuable tool for tracking economic trends as they unfold.
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