Does Energy Consumption Play a Key Role? Re-evaluating the Energy Consumption-Economic Growth Nexus From GDP Growth Rates Forecasting

As economic growth and energy consumption are strongly correlated, this research proposes a novel set of energy consumption indices (ECI) that leverages the mixing-frequency method to predict GDP growth rates. The findings demonstrate that the newly developed indices have strong predictive power. In particular, the electricity consumption index from the industrial sector has excellent forecasting performance, which deserves the attention of the government and the academia to monitor and regulate the economic operation. The mixed-frequency model with the Least Absolute Shrinkage and Selection Operator approach (MIDAS-LASSO) enables the full exploitation of energy consumption information for stable forecasting performance, even in the context of crisis fluctuations and geopolitical risk shocks. The development of the new ECI provides a better reflection of the macroeconomic environment and serves as a vital tool in GDP forecasting research. Furthermore, we apply forecast encompassing tests and variable selections to investigate the predictive information statistically. By analyzing energy consumption characteristics, we contribute to economic growth hypothesis at the energy-consuming sectors level and offers novel insights into GDP prediction