Forecast of China’s economic growth during the COVID-19 pandemic: a MIDAS regression analysis

Abstract

Purpose This study aims to examine the effect of the COVID-19 pandemic in comparison to the global financial crisis (GFC) on the gross domestic product (GDP) growth rate of China. Design/methodology/approach Empirical analyses are conducted through alternative methods such as ordinary least squares, Markov regime switching (MRS) and mixed data sampling (MIDAS) regressions. The flexibility of MIDAS regression enables us to use different variables with quarterly (GDP), monthly (export sales and foreign-exchange reserves) and daily frequencies (foreign exchange rates and Brent oil price). Findings The results indicate that the COVID-19 pandemic has had a considerable negative effect on China’s GDP growth, while the dummy variables used for the GFC are found to be insignificant. Further, the forecast accuracy test statistics exhibited a superior performance from MIDAS regression compared to the alternative models, such as MRS regression analysis. According to the forecast results, the authors expect a recovery in China’s economic growth in the second quarter of 2020. Originality/value This is one of the earliest studies to examine the effect of the COVID-19 pandemic on the Chinese economy, and to compare the impact of COVID-19 with the GFC. The authors provide further evidence regarding the performance of MIDAS regression analysis vs alternative methods. Findings obtained shed light on policymakers, corporations and households to update their consumption, saving and investment decisions in the chaotic environment of this pandemic.