# Presentation: 070475

## The 2001 Annual Energy Outlook’s Macroeconomic Forecast and Energy Market Implications

- Kay A. Smith
- Energy Information Administration
- March 27, 2001

## Topics

**Long Run Economic Trends**
- Labor Force and Productivity Growth
- Industrial Output Forecasts
- Comparison to AEO2000
**Energy Market Implications of Revised Macroeconomic Outlook**
- End Use Energy Forecasted Demand Growth
- Macroeconomic Drivers

## Long-Run Economic Trends

**Long-Run Growth**
- Labor Force and productivity determine the long run growth of the economy.  Labor force growth is 1%; Productivity growth should be 2% yielding long run growth of GDP at 3%.
- The 5-Year Growth rates of GDP, Labor force  decline as 2020 approaches.
- Labor Force growth drops sharply, but productivity keeps GDP at relatively high rates of growth

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## Long Run Economic Trends

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**Comparison to AEO 2000**
- Increased productivity growth leads to higher forecasted long run growth.  Labor force growth is slightly higher but main reason for the 0.9% differential in growth lies in productivity.
- Real investment growth is much higher this year for several reasons:  redefinition of investment; more optimistic view of economy at full employment.

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## Long Run Economic Trends

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**Industrial Sector Growth**
- Industrial Output comes from a linked input-output and macroeconomic model
- Gross Output grows at rates close to the overall GDP growth of 3 percent
- Manufacturing output increases by 2.8% over the forecast, with industries that use energy intensively growing the slowest.
- High growth industries include electronic equipment and industrial machinery

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## Long Run Economic Trends

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**Industrial Sector Growth**
- The industries that use energy most intensively grow at less than half the growth expected from other manufacturing industries.
- The highest growth industries are concentrated in the technology sector:  computers and semiconductors.

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## Implications of Macroeconomic Forecasts on Energy Markets

**Residential, Commercial, Industrial and Transportation Sectors**
- Each end-use demand model uses a different set of macroeconomic activities to help forecast energy demand.
- As an aggregate measure of energy intensity, GDP is commonly used as an economic activity measure, but many argue that using GDP masks actual energy intensity in particular end use energy markets.
- Instead of using a common measure of economic activity (GDP), each demand sector delivered energy consumption is matched with an economic activity that the demand module uses.

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## Conclusions

**AEO2001 predicts higher economic activity**
- Redefinition of GDP and investment
- More optimistic notion of how much potential supply can expand without increasing prices and unemployment
- Higher rates of productivity growth

## Conclusions

**continued**

**Impacts on energy demand forecasts**
-  A more optimistic forecast of growth in economic activity explains some of the differences in energy forecasts.
- Other factors may be more important in explaining the differences in energy demand forecasts, such as underlying efficiencies in equipment or technology assumptions pertaining to a particular energy process.