Monday, September 3, 2007

GDP, Schmi-DP: does the economic outlook matter for your sales forecast?

Barely a week passes without a new economic forecast from a stockbroker economist, government body, or international organisation. But do their forecasts matter if you are trying to project your sales for next year or the year after?

I am regularly asked for my views on the economy by clients and I am usually happy to oblige - often with an average of all the forecasts made in the previous few months. But still I wonder - 'so what if GDP will rise by 4%, 3% or 5.25% next year, how has it influenced your sales up til now?' Below is Ireland's nominal GDP growth rate going back to 1997. Plot the value of your own sales each year against the GDP trend and draw your own conclusions (or if you are using Excel run a correlation).

Ireland's nominal GDP annual growth rate at current market prices (from the ever helpful CSO website):

1997 15.7
1998 15.6
1999 15.2
2000 15.4
2001 11.8
2002 11.4
2003 7.1
2004 6.5
2005 8.8
2006 8.2

And if you have gone to the bother of working out whether your sales really are correlated with GDP then you can test the significance of the correlation using this simple online tool here

That way you'll know whether to skip the article on the latest economic forecast and go straight to the sports (or lifestyle) pages instead!

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