Relative Performance of Business and Consumer Economic Expectations Across EU Countries

Survey designs that aim at international comparisons of economic expectations are complex. Question wording and response scales must be applicable across countries to provide policy makers with reliable information. Substantial progress on harmonization has been made by the EU in their member surveys. While forming expectations is a difficult task for anyone, business firms have been thought to have a distinct advantage over consumers. This paper investigates this presumed superiority by examining whether firms change their expectations in advance of households, and whether firms’ expectations provide more accurate forecasts than household expectations. The comparisons are based on monthly expectations data for the countries in the European Union. While linkages were often found to be bidirectional, the data more frequently found unidirectional linkages that went from households to firms for unemployment and GDP. For a modest number of countries, firms and households jointly contributed to forecast accuracy, but the sole impact of household data clearly dominated the comparable results for firms. The objective of this analysis was exploratory, with the goal to identify countries which lacked significant connections for a more detailed investigation of the potential sources of measurement errors.