Firm Performance Prediction for Macroeconomic Diffusion Index using Machine Learning

Abstract

Utilizing firm performance in the prediction of macroeconomic conditions is an interesting research trend with increasing momentum that supports to build nowcasting and early warning systems for macroeconomic management. Firmlevel data is normally high volume, with which the traditional statistics-based prediction models are inefficient. This study, therefore, attempts to assess achievements of Machine Learning on firm performance prediction and proposes an emerging idea of applying it for macroeconomic prediction. Inspired by “micromeso-macro” framework, this study compares different machine learning algorithms on each Vietnamese firm group categorized by the Vietnamese Industry Classification Standard. This approach figures out the most suitable classifier for each group that has specific characteristics itself. Then, selected classifiers are used to predict firms’ performance in the short term, where data was collected in wide range enterprise surveys conducted by the General Statistics Office of Vietnam. Experiments showed that Random Forest and J48 outperfomed other ML algorithms. The prediction result presents the fluctuation of firms’ performance across industries, and it supports to build a diffusion index that is a potential early warning indicator for macroeconomic management.