Oil, a Key Economic Variable That Remains Difficult to Forecast

2026-07-16T00:00:00+02:00

Despite its relative decline in the global energy mix, oil is still a critical resource for the global economy, especially in transportation and industry. The oil trade depends on globalised supply chains and a number of strategic sea routes connecting the main oil-producing regions to the major consumer markets.

Oil prices are driven by the balance between global supply and demand, as well as by market expectations of future developments. The decisions of oil-producing countries, notably the United States, the world’s largest producer, and the members of OPEC+ (Organization of the Petroleum Exporting Countries and its partners) have a strong influence on prices, while growing demand in emerging economies is one of the main drivers of consumption.

Oil prices are also highly sensitive to geopolitical shocks. Recent tensions in the Middle East have confirmed the world economy’s continuing dependence on the Strait of Hormuz, a key chokepoint for oil transportation.

The macroeconomic impact of an oil shock varies according to a country’s energy mix, degree of energy dependency and geographical exposure. Oil shocks affect economies through three main channels: (i) inflation, which affects purchasing power and consumption, (ii) global demand, through the slowdown in activity in partner countries, and (iii) capital expenditure, as rising production costs erode corporate margins.

Oil prices are a key variable for the global macroeconomic outlook. However, forecasting is highly complicated due to the uncertainty surrounding price developments, high volatility and sensitivity to geopolitical events. In this context, the French Treasury (DG Trésor) generally uses the random walk forecasting method, which combines simplicity with forecasting performance. It may, however, deviate from this method, as in the spring of 2026, when exceptionally high prices are unlikely to persist.

Nowcasting French GDP Growth During Exceptional Periods

2024-08-22T00:00:00+02:00

Nowcasting, or very short-term forecasting, is a crucial tool for understanding major changes in the economy and detecting turning points in the business cycle. Nowcasting is the first stage in the economic forecasts at the two-year horizon established by the Directorate General of the Treasury to prepare France’s budget acts and stability programmes.

In the period from 2020 to 2023, supply difficulties arising from the COVID-19 health crisis and Russia’s war of aggression in Ukraine played a greater role in restricting economic activity than demand for firms’ output (see Chart). France’s economic trajectory during this exceptional period was thus influenced more by supply factors than by demand factors that typically dominate.

The predictive performance of economic models based explicitly or implicitly on demand variables thus worsened during the crisis period, notably in the case of the nowcasting models that rely on composite business climate indicators to predict GDP growth.

Alternative models incorporating automatic input variable selection can be used to identify, from a vast array of data sources, those items that make the greatest contribution to improving predictive performance. Such models are simple to interpret and econometrically similar to conventional models.

For the recent period, an ex-post estimation shows that variables such as supply constraints in manufacturing, which are typically absent from conventional models, would have made the greatest contribution to improving short-term GDP forecasting for France.

Trésor-Info - Publications de la direction générale du Trésor - Forecasting

Oil, a Key Economic Variable That Remains Difficult to Forecast

Nowcasting French GDP Growth During Exceptional Periods