A macro model is an analytical tool designed to replicate the operation of an economy—either global or national. It examines the dynamics of important economic indicators like real GDP growth, inflation and unemployment.
Macroeconomic forecasts allow policymakers and business executives to stay ahead of risks and spot opportunities to compare different strategic options.
When conducting a market assessment or considering different policy scenarios, organisations can use this type of information to plan for major macroeconomic shifts.
How does a macro model work?
Macro models serve three main purposes to facilitate business planning.
Prepare for shifts with macro models
• Understand past and present market dynamics
• Predict different economic indicators
• Evaluate alternative scenarios or outcomes
As a key component of market research, macro models help you determine the economic implications of various hypothetical events or changes. This brings us to two different types of forecasts: baselines and scenarios.
Baseline and scenario forecasts
A baseline forecast presents the most likely outlook for a country or region. Our baseline forecasts are reviewed and revised quarterly to reflect the most recent economic developments. A probability rate is also assigned to account for uncertainties and other scenario outcomes.
Scenario forecasts capture a range of alternative futures to the baseline forecast with assigned probabilities.
What would happen to an economy if there’s a major oil price shock or if a global financial crisis hits? Scenario analysis can help minimise surprises by examining the impact of downside risks. These hypothetical “what if” scenarios are particularly important when dealing with highly volatile environments.
Scenario analysis can simulate potential economic shocks across industries and economies. Global scenarios, for example, focus on events that would have a notable economic effect on more than one economy. These scenarios usually represent significant global or regional economic events, such as global fragmentation, China slowdown or total Trump agenda.
Why should you use macro models?
The use of a macro model provides a structured, data-driven approach to forecasting and proactive decision-making.
Pairing macroeconomic forecasts with market research leads to a more robust strategy and a better response to negative shocks. Here are four ways a macro model can help you stay ahead of risks and spot opportunities.
How macro model intel empowers your business strategy
1. Understand past and future economic trends better
2. Analyse risks and economic outlook for systematic business planning
3. Assess how major events might impact business environments
4. Examine a range of alternative optimistic and pessimistic forecasts
Macro model data and insights are critical for your business. Keep up with our latest economic trends and learn more about our research to support your strategic decisions.
Editor's note: This article was originally published in January 2019 and has been updated.