11th CEIES Seminar EU Short Term Economic Indicators: Meeting

Luxembourg: Office for Official Publications of the
7
European Communities, 2001
2001
COPYRIGHT
Cat. No. KS-AN-01-007-EN-I
© European Communities, 2001
11th CEIES Seminar
EU Short Term Economic
Indicators: Meeting New Needs
Part 1 - Current situation
Paper by Michel Devilliers, INSEE
«Greater cooperation between producers
of economic data»
E U R O P E A N
COMMISSION
1
THEME 1
General
statistics
A great deal of additional information on the European Union is available on the Internet.
It can be accessed through the Europa server (http://europa.eu.int).
Luxembourg: Office for Official Publications of the European Communities, 2001
© European Communities, 2001
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INDEX
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
1 No need for new surveys, except perhaps in the service sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
2 The data currently available offer possibilities for moitoring the European Union’s
economy which are fully explored . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
3 Strengthening cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
INDEX
Introduction
The proposals made below by a "producer" of short-term indicators are
actually based on a user's experience, since Insee also publishes economic forecasts.
From this experience we have learned that short-term forecasting methods have
changed little over the last few decades. The most substantial progress in providing
information on the economic situation was made from the 1960s onwards with the
creation and extension of economic surveys, and the conversion of quarterly surveys
to monthly surveys once it was realised that a quarterly cycle was insufficient for
recording changes in the opinions of economic agents.
The real change in economic forecasting methods has been the introduction of
the entire euro zone as the relevant framework for forecasts, instead of one Member
State taken in isolation. For a long time it was difficult for national institutes to make
forecasts for their countries, since every European country is very open to the outside
world. By contrast, the euro zone has a low level of openness. It also has a common
monetary policy and a harmonised budgetary policy.
Now it is legitimate to calculate aggregate indicators for the euro zone, and, on
the basis of these aggregate indicators, to make forecasts for the whole euro zone
using the methods usually used for drawing up national forecasts. This is even more
justifiable, given that the euro zone has had a common industrial economy for almost
ten years (Figure 1). Recently, annual GDP shifts have also followed very similar
trends (Figure 2).
-2-
INDEX
1) No need for new surveys, except perhaps in the service sector
The high availability of good economic indicators for the European Union
means that no new surveys are necessary. Economic information is abundant in the
Member States, at least in the larger ones, which are also the most important ones in
terms of aggregation. In this context, it is worth noting that six countries (Germany,
Belgium, Spain, France, Italy and the Netherlands) are responsible for 93% of the
gross domestic product of the euro zone, so it is not necessary to have data on all
countries to draw up meaningful aggregate indicators. Incidentally, one disadvantage
of launching new surveys would be that the indicators would not be usable for some
time: to the two years usually needed for setting up a new system of collection, three
or four must be added for making quality seasonal variation corrections, which are
inevitable with economic data. It is also reasonable to assume that businesses would
be reluctant to take on any additional administrative burden. If extra effort is needed in
the collection of data, it should be channelled towards maintaining the quality of the
indicators, since the system of observation must be continually adapted to the everevolving business world.
One small correction to be made to the system of economic observation relates
to the need for better coverage of the service sector, particularly in economic surveys.
Currently, the sector with the best coverage is industry, since it is the engine of
cyclical change. Experience shows that indicators taken from economic surveys of
industry provide a useful picture of short-term developments and even an indication of
the GDP growth rate. At the moment, incorporating data on services only slightly
refines the picture, but the growing influence of services on the economy cannot be
ignored; indeed, in the long term they may even become the most important branch of
the economy.
-3-
INDEX
2) The data currently available offer possibilities for monitoring the European
Union's economy which are not fully explored
This can be demonstrated simply by taking the example of economic surveys.
Thanks to consistent action by the Commission since 1962, economic surveys in the
European Union have been developed on a harmonised basis, and there is therefore no
major obstacle to their aggregation. Beyond the publication of raw data, these surveys
can be used in a multitude of ways.
Currently, the avenue most often explored is that of drawing up cyclical
indicators to represent the economic situation throughout the Community. For
example, Insee recently published two indicators based on economic surveys in
industry. The first overall indicator, referred to as the "common factor" (Figure 3), is a
coincident indicator representing activity in the euro zone. The second indicator,
referred to as a turning-point indicator, is a leading indicator which attempts to record
and clearly show changes in industrialists' assessment of the economic situation.
Because they are simple and easy to interpret, these overall indicators are
greatly appreciated by the media and market operators. They do not, however, reflect
the wealth of information contained in economic surveys, which present an overall
view of the economic situation in relation to the determinants of demand, the links
between supply and demand, and to those variables which are essential to
management of the economic cycle: physical pressure on production capacities and
price expectations. In this context, the survey results indicate, for example,
fundamental changes in the behaviour of economic agents. Figure 5 shows a break in
the previous link between price expectations and production expectations from the
mid-1990s onwards. This phenomenon, which could change economic cycles
radically, can also be seen in other European countries, such as Germany (Figure 6).
There is therefore important work to be done in mining the rich seam of information
contained in the economic surveys, and presenting it in a form which can be used by
all economic agents in the European Union.
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INDEX
3) Strengthening cooperation
If Insee has been able to make headway in the use of economic surveys for the
euro zone, it is mostly thanks to the contacts we have had for several years with our
German and Italian colleagues. However, in order to fully explore the avenues
described above, we must set up a European network of establishments producing
economic surveys. In fact, this is indispensable to solving certain problems which
continue to exist, despite the common framework put in place at the start of these
surveys, and must be dealt with to obtain quality aggregate indicators: and here I am
referring to harmonisation of the procedures for revising replies and corrections of
seasonal variations. Above all, such a network is necessary for improving the use of
aggregate European indicators by analysing the differences in answer behaviour. At
the moment, these differences can only be eliminated using statistical methods aimed
at giving fluctuations in the survey variables of the different countries the same range.
This cooperation between producers can also be usefully applied to other
economic statistics. It is certainly the fastest method of implementing a series of
effective indicators for the European Union. Accordingly, Insee has just launched, in
response to European demand, an initiative in the area of wages to identify labour cost
indicators using existing sources.
-5-
INDEX
Trend in past production
200,0
150,0
100,0
50,0
0,0
-50,0
-100,0
-150,0
-200,0
-250,0
-300,0
janv-90
janv-91
janv-92
janv-93
janv-94
janv-95
euro zone
janv-96
janv-97
janv-98
France
-6-
janv-99
janv-00
INDEX
Annual growth shifts
4
3
2
1
0
-1
-2
-3
199201
199301
199401
199501
199601
euro zone
199701
France
-7-
199801
199901
Germany
200001
INDEX
euro zone
250,0
200,0
150,0
100,0
50,0
0,0
-50,0
-100,0
-150,0
-200,0
-250,0
JAN93
JAN94
JAN95
JAN96
JAN97
Overall indicator
-8-
JAN98
JAN99
JAN00
INDEX
euro zone
1,000
0,750
0,500
0,250
0,000
-0,250
-0,500
-0,750
-1,000
JAN93
JAN94
JAN95
JAN96
JAN97
Turning-point indicator
-9-
JAN98
JAN99
JAN00
INDEX
France
250,0
200,0
150,0
100,0
50,0
0,0
-50,0
-100,0
-150,0
-200,0
-250,0
-300,0
janv-90
janv-91
janv-92
janv-93
janv-94
janv-95
Production outlook
- 10 -
janv-96
janv-97
Price outlook
janv-98
janv-99
janv-00
INDEX
Germany
300,0
200,0
100,0
0,0
-100,0
-200,0
-300,0
-400,0
janv-90
janv-91
janv-92
janv-93
janv-94
janv-95
Production outlook
janv-96
janv-97
janv-98
Price outlook
- 11 -
janv-99
janv-00