Nowcasting Spanish GDP Growth in Real Time: 'One and a Half Months Earlier'

The sharp decline in economic activity registered in Spain over 2008 and 2009 has no precedents in recent history. After ten prosperous years with an average GDP growth of 3.7%, the current recession places non-judgemental forecasting models under stress. This paper evaluates the Spanish GDP nowcasting performance of combinations of small and medium-sized linear dynamic regressions with priors originating in the Bayesian VAR literature. Our forecasting procedure can be considered a timely and simple approximation to the mix of accounting tools, models and judgement used by the statistical agencies to construct aggregate GDP figures. The real time forecast evaluation conducted over the most severe phase of the recession shows that our method yields reliable real GDP growth predictions almost one and a half months before the official figures are published.