European Commission
Directorate General Economic and Financial Affairs
The EU Programme of Business and Consumer surveys:
scope and relevance for economic analysis
Kristine Vlagsma
Reuben Borg
International Seminar on Early Warning and
Business Cycle Indicators
14-16 December, 2009
European Commission
Outline
1.
The Joint Harmonised EU Programme of Business and
Consumer Surveys
–
–
–
2.
Scope
Methodology
Developments
Relevance for Economic Analysis
–
–
–
Information content
Use of survey indicators for economic analysis
Focus on the recent economic crisis
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The Joint Harmonised EU Programme
of Business and Consumer
Surveys
European Commission
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Potential of the EU BCS
•
Strengths
–
–
–
–
–
–
–
–
•
Shortcomings
–
–
•
Timely
Representative
Harmonised questionnaire and methodology
No revisions
Historical database
Wide-Coverage: countries, sectors and questions
Reference point to other countries outside the EU BCS programme
Part of Eurostat’s Principal European Economic Indicators (PEEIs) for short-term analysis
Rather inflexible to changes due to harmonisation and logistical issues among many
institutes
Interest in soft data decreases as soon as hard data becomes available
Comparison with other available surveys
–
–
–
Questions may vary
EU BCS has a larger sample size
EU BCS has a sectoral indicator for all EU countries (currently limited coverage for Ireland)
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Scope of the EU BCS
•
Six harmonised surveys are conducted on a monthly basis:
– Industry
since
1962
– Construction
1966
– Consumers
1972
– Retail Trade
1984
– Services
1996
– Financial services (pan-EU) 2006
•
In addition:
– Investment survey twice a year
– Additional quarterly questions in Industry, Consumers, Services,
Construction, and Financial services surveys
•
Covers all 27 EU Member States, Croatia, the Former Yugoslav Republic of
Macedonia and Turkey (currently limited coverage in Ireland)
•
More than 125,000 firms and over 40,000 consumers surveyed every month
across the EU
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Data collection and calculations
•
Data are collected in the first half of the month, and then sent to DG
ECFIN around a week before the end of the month.
•
The BCS results are usually published on the second last working day of
each month
•
DG ECFIN publishes:
–
Monthly press release and publically available data on the website:
( http://ec.europa.eu/economy_finance/bcs )
–
The Economic Sentiment Indicator (ESI) - EU and euro-area
aggregates + seasonally adjusted balance series
–
6 sectoral Confidence Indicators
–
Business Climate Indicator (BCI) for the euro area (factor modelbased)
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Methodology
•
Methodological and practical guidelines published in a EC
European Economy - Special Report No 5
–
Part A: User Manual
–
Part B: International guidelines and recommendations on the
conduct of BCS
–
Part C: Studies related to the EU BCS programme
–
Website of Special Report:
http://ec.europa.eu/economy_finance/publications/publication7568_en.pdf
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Methodology to compute the euro-area ESI
Step 1: calculation of balances per question
(Balance = Positive replies – Negative replies)
Step 2: calculate euro area (EA) aggregate for individual question. Country weights are
taken as shares of each MS in the EA reference series (eg: Industry GVA for
industry questions)
Step 3: seasonal adjustment of raw data for EA individual question
Step 4: standardise EA individual questions, reference period from 1990 till latest
December available data
Step 5: aggregate EA individual components to get the total weighted average ESI using
fixed sectoral weights
(Industry 40%, Services 30%, Consumers 20%, Construction 5%, Retail 5%)
Step 6: ESI is scaled to have a long-term mean of 100 and a standard deviation of 10
(same reference period for moments)
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Administration of the programme (I)
• Surveys are carried out locally by national
institutes according to common principles:
– use of the same harmonised questionnaires;
– same frequency and timetable;
– in compliance with international guidelines on data
collection and survey design
• Commission supports the institutes with grants
(maximum 50% of the costs of the surveys)
• Annual budget of appr. €5-6 million
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Administration of the programme (II)
• Yearly workshops between DG ECFIN and national
survey institutes.
• Every two years, joint conference with the OECD
• Missions to institutes (to ensure harmonisation and
address particular issues)
• Launch of call for proposal
 Current framework agreements with partner institutes
cover period May 2008 - April 2011
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Developments
•
Flash Consumer Sentiment
–
Testing phase
–
To be released approx 4/5 working days in advance of the final results
–
Statistical techniques to impute missing values
•
Testing of ‘capacity utilisation’ question in the services survey
–
•
Intention to be included in 2011
NACE Revision – changeover in May 2010
–
Follows a wide collaboration with partner institutes
–
Back-casting process in line with NACE 2 classification, going back to
–
2000 - 2-digit level of detail
–
1985 - Totals and Main Industrial Groupings
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NACE 2 Revision
Practical implications
•
Institutes:
–
Re-adjustment of activity-related codes
–
Increased codes (mainly in services) and coverage
–
Re-adjustment of samples and update of metadata
–
Need to back-cast historical series in NACE 1 into NACE 2 nomenclature
•
Users:
–
New historical series, potentially different for a number of codes
–
Perhaps not that much change for the aggregate figures
Back-casting exercise priorities
–
Smooth and seamless changeover in May 2010: Contingency plans to limit
risks
–
Minimise margin of error in published series especially for country and sector
Totals
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Relevance for Economic Analysis
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Use of sentiment surveys for economic analysis
Advantages – timely, good correlation, harmonised, wide-coverage, no
revisions,
Application and methodologies
•
Forecasting (mainly short-term)
–
Bridge or indicator models
–
Dynamic Factor Models
•
•
Business cycle analysis
–
Regime-switching Models (Turning-Point Indicator)
–
Climate Indicators (by sector and by country)
–
Climate Tracer (cyclical analysis using quadrants)
Other ad hoc studies eg: price expectations, investment
expectations
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The information content of BCS – euro-area ESI
Euro-area ESI shows good correlation (0.94) with real GDP growth (year-on-year)
y-o-y %change
4
3
2
1
0
-1
-2
-3
-4
-5
%balance
120
ρ98-08 = 0.94
110
100
90
80
70
60
Real GDP grow th
Economic Sentiment (RHS)
2001
2002
2003
2004
2005
2006
2007
2008
2009
Note1 : in rhs 100 = average 98 to date
Source: European Commission services
Note2: both series are plotted at monthly frequency. GDP monthly data are obtained through a linear inerpolation of quarterly data.
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The information content of BCS – Industry
The euro area Industrial Confidence Indicator shows good correlation (0.89) with
industrial production growth (year-on-year)
%balance
y-o-y %change
10
5
0
-5
-10
-15
-20
-25
10
0
-10
-20
-30
Industrial Confidence (RHS)
Industrial production growth
-40
ρ98-08 = 0.89
2001
2002
Note: in rhs 100 = average 98 to date
2003
-50
2004
2005
2006
2007
2008
2009
Source: European Commission services
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The information content of BCS – Services
y-o-y %change
5
4
3
2
1
0
-1
-2
-3
%balance
30
ρ98-08 = 0.88
20
10
0
-10
Services value added growth
Service Confidence(RHS)
-20
-30
2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: European Commission services
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The information content of BCS – Consumers
y-o-y %change
%balance
6
10
ρ98-08 = 0.77
0
4
-10
2
0
-20
Consumption growth
Consumer Confidence (RHS)
-2
-30
-40
2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: European Commission services
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The information content of BCS – Construction
y-o-y %change
6
4
2
0
-2
-4
-6
-8
-10
%balance
10
ρ98-08 = 0.45
0
-10
-20
Construction production growth
Construction Confidence (RHS)
-30
-40
2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: European Commission services
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The information content of BCS – Retail
y-o-y %change
%balance
4
3
5
ρ98-08 = 0.46
0
2
-5
1
-10
0
-15
-1
-2
Consumption growth
Retail Confidence (RHS)
-20
-25
2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: European Commission services
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The information content of BCS – Investment survey on expectations
40
Investment expectations
y-o -y %
Estimated 2009
Provisional 2010
Volume change
20
0
-20
-40
-60
-80
EU
EA
BE BG
CZ
DK
DE
EE
IE
EL
ES
FR
IT
CY
LV
LT
LU
HU
NL
AT
PL
PT
European Commission
RO
SI
SK
FI
SE
UK
21
The information content of BCS – Capacity utilisation
Capacity utilisation in euro area
90.00 %
85.00
80.00
75.00
70.00
65.00
1990
1991 1992
1993
1994
1995
1996
1997
1998
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
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The information content of BCS – Tracking the Business cycle
Economic Climate Tracer – counter-clockwise movement along phases of business cycle
2-step procedure
• weighted average of five principal-components based sector climate indicators
• all climate indicators smoothed using the HP filter
Climate Tracer
2
expansion
downswing
1
Jan-00
level
0
-1
Nov-09
-2
-3
-4
-5
-0.6
upswing
contraction
-0.3
0
m-o-m change
0.3
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Use of sentiment surveys during the economic crisis
•
Provided a good economic anchor for policy
analysis months before hard data
•
Timely release (full quarter results at least 2 months ahead
of first GDP release of the same quarter)
•
Indicated turning points in the current cycle
very well
•
Non-linearities were observed (possible response
behaviour changes during the crisis)
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Use of sentiment surveys during the economic crisis
• Indicated start of the downturn phase of the cycle in mid-2007
• Signalled the scale of decline in activity in 2008: Q4
• Trough in March
• Subsequent recovery correctly predicted by the ESI so far
120.0
4.0
3.0
110.0
1.0
100.0
90.0
-1.0
-2.0
80.0
-3.0
-4.0
70.0
-5.0
Economic Sentiment (RHS)
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Jul-05
-6.0
Apr-05
60.0
Jan-05
ESI
0.0
real GDP growth (yoy)
2.0
Real GDP growth
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Thank you for your attention!
For further information about the EU Programme of Business and Consumer
Surveys, please consult our website:
http://ec.europa.eu/economy_finance/bcs
Contact:
DG ECFIN Unit A3 – Economic Studies and Business Cycle Surveys
E-mail addresses:
Kristine Vlagsma: kristine.vlagsma@ec.europa.eu
Reuben Borg:
reuben.borg@ec.europa.eu
European Commission
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