ChatGPT helps ECB find more accurate GDP forecast with just two pages of PMI commentary

The European Central Bank (ECB) is now using ChatGPT to improve how it predicts GDP growth in the eurozone, according to a paper the bank published on Thursday in Frankfurt. Instead of drowning in endless data, the study says the bank used only two pages of commentary from Purchasing Managers’ Index (PMI) reports, and it worked. They fed that short commentary into ChatGPT, and the AI generated what they called “activity sentiment scores,” which were then dropped into their existing GDP nowcast models. Those nowcasts showed stronger accuracy. This new use of artificial intelligence is part of the ECB’s ongoing push into automation and machine learning. For years, the bank has been scraping web data and experimenting with large models to classify economic information. But this is the first time they’ve tested ChatGPT on PMI text, focusing entirely on narratives, tone, and anecdotes in those reports. ECB economists say ChatGPT improves forecast accuracy The study pointed out that existing GDP forecasting models are difficult to beat, but ChatGPT’s scores made them better. It said: “The main compelling result is that the enhancement of the PMI text scores to the two GDP nowcast benchmarks significantly improves the accuracy of GDP nowcasts.” That’s with just two pages of input, not millions of news articles. The researchers added, “Only two pages of text rather than for example millions of newspaper articles can be sufficient to enhance existing hard-to-beat benchmarks.” The system doesn’t replace traditional hard data like retail numbers or output stats. But it speeds things up. By scoring tone and sentiment in real time, the ECB gets a faster idea of whether economic activity is heating up or cooling down, before slower official numbers arrive. That’s the main takeaway: faster signals, better nowcasts. But even with a stronger AI setup, the bank’s forecasts face real-world pressure. Luis de Guindos, Vice President of the ECB, warned that Middle East conflict and energy prices could disrupt growth. Luis said that oil prices jumped following Israel’s attack on Iran earlier this month, though they’ve dropped slightly since then. Still, he said energy costs remain unstable: “The outbreak of the Israel-Iran conflict adds some uncertainty about oil price developments.” He warned that those fluctuations could impact eurozone growth, and by extension, affect inflation. “It is therefore important to closely monitor developments in the real economy as an indicator of the inflation outlook.” Luis made it clear that the eurozone’s dependence on imported oil and gas, especially compared to the US, means price spikes act like an extra tax. That hits both households and businesses, dragging growth down. Even as the EU builds out its renewable energy supply, imported energy remains a key risk factor. Tariffs, inflation, and ECB rate decisions remain in play Luis also said trade tensions could create additional problems. With higher tariffs on European exports to the US, inflation might fall, not because of better monetary policy, but because the tariffs will slow growth. “Higher tariffs are expected even if bilateral negotiations go well,” he said. That’s more pressure on the ECB’s goals. Earlier this month, the ECB dropped its key interest rate for the eighth time and hinted that it might be close to wrapping up that cycle of cuts. In May, inflation dipped just below the bank’s 2% target. Luis sounded optimistic but cautious: “We believe that we are very close to our target. We believe that we are in a good position.” That doesn’t rule out more rate cuts though. If energy and trade keep dragging inflation down, another rate decision could be on the table. Luis also said the eurozone needs deeper integration. He said the way to handle all this chaos—from war to energy to economic shocks—is through “more Europe.” That includes knocking down barriers between EU countries and setting up shared markets for banking, savings, and investment. His words: “We must put Europe’s interests ahead of national interests.” Cryptopolitan Academy: Want to grow your money in 2025? Learn how to do it with DeFi in our upcoming webclass. Save Your Spot

Source: Cryptopolitan