Latest Development of Composite Indicators in the Czech Republic

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Ignacy Rybak
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1 Latest Development of Composite Indicators in the Czech Republic Marie Hörmannová Czech Statistical Office

2 Aim of the presentation: describe the current economic development as reflected by the composite indicators in the Czech republic Business Cycle Survey in September 2009: Confidence in domestic economy increased in September. The composite confidence indicator (economic sentiment indicator) increased by 2.7 points m-o-m, due to increasing confidence of both consumers and entrepreneurs. Among entrepreneurs, confidence increased most in industry. Compared to September 2008, the composite confidence indicator was 17.5 points down.

3 Basic facts about BCS in the Czech Republic: 1991 new conception of the business-cycle surveys present surveys fully harmonised number of respondents: Industry Construction Retail trade Services Investment New weighting system for composite indicators (since January 2006) all data are recalculated and fully comparable: Industry (40), construction (5), trade (5), services (30), consumers (20) All data are regularly published each month in different forms (e.g. News Releases, Publications, Tables, Time Series)

4 Seasonally adjusted confidence indicators III-98 VI-98 IX-98 XII-98 III-99 VI-99 IX-99 XII-99 III-00 VI-00 IX-00 XII-00 III-01 VI-01 IX-01 XII-01 III-02 VI-02 IX-02 XII-02 III-03 VI-03 IX-03 XII-03 III-04 VI-04 IX-04 XII-04 II V IX-05 XI III-06 VI-06 IX-06 XII-06 II V IX-07 XI II V I XI II V IX-09 Indices Average of 2005 = 100 Months Composite indicator Business indicator Consumer indicator Marked fall in the confidence as reflected by composite indicators stopped in February Since then the composite indicators has been swinging.

5 SA Industry Construction Retail Trade Selected Services Changes in the demand in a sector that is the first to absorb them (which is industry and construction in the current situation in the Czech Republic) subsequently reflect in other dependent sectors (namely trade and services).

6 Industry - decomposition SA I-98 IV-98 VII-98 X-98 I-99 IV-99 VII-99 X-99 I-00 IV-00 VII-00 X-00 I-01 IV-01 VII-01 X-01 I-02 IV-02 VII-02 X-02 I-03 IV-03 VII-03 X-03 I-04 IV-04 VII-04 X-04 IV-05 VI X-05 I-06 IV-06 X-06 VI X-07 IV-08 VI IV-09 VI Demand Months Demand Stocks Production Activity Indicator As seen by the latest development, cyclic impulses enter the economy particularly through demand, both domestic and foreign as far as the very open Czech economy is concerned.

7 Production Capacity Utilisation an Confidence in Industry ,0 86,0 84,0 82,0 8 78,0 76,0 74,0 72, VII-94 IV-95 I-96 X-96 VII-97 IV-98 I-99 X-99 VII-00 IV-01 I-02 X-02 VII-03 IV-04 X-05 VI -60 Capacity Utilisation Industry Indicator Worsening of demand has substantially reflected itself in the development of production capacity utilisation.

8 Limits of production in industry X-06 VI X-07 IV-08 VI IV-09 VI others financial constraints shortage of material and /or equipment shortage of labour force insufficient demand none Lack of demand and financial constraints gradually substituted almost all other limits of production, namely the lack of labour force, which dominated previous development.

9 Construction - decomposition SA Demand I-98 IV-98 VII-98 X-98 I-99 IV-99 VII-99 X-99 I-00 IV-00 VII-00 X-00 I-01 IV-01 VII-01 X-01 I-02 IV-02 VII-02 X-02 I-03 IV-03 VII-03 X-03 I-04 IV-04 VII-04 X-04 IV-05 VI X-05 I-06 IV-06 X-06 VI X-07 IV-08 VI IV-09 VI Months Demand Employment Indicator Fall in both private and public demand and subsequent decrease in expectations of employment has pulled the confidence down in construction.

10 Limits of production in construction IV-05 VI X-05 I-06 IV-06 X-06 VI X-07 IV-08 VI IV-09 VI others financial constraints shortage of material and /or equipment shortage of labour force w eather conditions insufficient demand none Previously rapid development in construction detoriated substantially as a result of the economic crisis; main limit of production being demand and financial constraints.

11 Retail trade - decomposition SA I-98 IV-98 VII-98 X-98 I-99 IV-99 VII-99 X-99 I-00 IV-00 VII-00 X-00 I-01 IV-01 VII-01 X-01 I-02 IV-02 VII-02 X-02 I-03 IV-03 VII-03 X-03 I-04 IV-04 VII-04 X-04 IV-05 VI X-05 I-06 IV-06 X-06 VI X-07 IV-08 VI IV-09 VI Months Current situation Stocks Expectations Indicator Recently, confidence downturn is shifting to consumption, which reflects itself namely in the current situation as well as expectations in trade.

12 8 7 Services - decomposition SA I-98 IV-98 VII-98 X-98 I-99 IV-99 VII-99 X-99 I-00 IV-00 VII-00 X-00 I-01 IV-01 VII-01 X-01 I-02 IV-02 VII-02 X-02 I-03 IV-03 VII-03 X-03 I-04 IV-04 VII-04 X-04 IV-05 VI X-05 I-06 IV-06 X-06 VI X-07 IV-08 VI IV-09 VI Demand Months Current situation Demand Expectations of demand Indicator Also in services, detoriation of demand predominantly influences the level of confidence.

13 Consumer Confidence Indicator - decomposition Unemployment -7-8 I-98 IV-98 VII-98 X-98 I-99 IV-99 VII-99 X-99 I-00 IV-00 VII-00 X-00 I-01 IV-01 VII-01 X-01 I-02 IV-02 VII-02 X-02 I-03 IV-03 VII-03 X-03 I-04 IV-04 VII-04 X-04 IV-05 VI X-05 I-06 IV-06 X-06 VI X-07 IV-08 VI IV-09 VI Měsíce Economic situation Financial situation Unemployment Savings Indicator First of all, fear of unemployment (here displayed with negative sign) pulls the consumer confidence down.

14 Industrial Production Index and Confidence Indicator 125,0 115, ,0 Indices 95,0 85,0 75,0 65,0 Average of 2005 = 100 I-01 IV-01 VII-01 X-01 I-02 IV-02 VII-02 X-02 I-03 IV-03 VII-03 X-03 I-04 IV-04 VII-04 X-04 IPI IV-05 VI X-05 I-06 Months Industry IV-06 X-06 VI X-07 IV-08 VI IV-09 VI As to September 2009 (latest data available), confidence in industry in the Czech republic has been slowly growing for six consecutive months. Development in industry is crucial for the Czech economy as a whole

15 Composite confidence Indicator and GDP ,0 105,0 6,0 10 4,0 95,0 GDP, y-o-y 2,0 9 85,0 Indices -2,0 8-4,0 75,0-6,0 7-8,0 65,0 I-98 VII-98 I-99 VII-99 I-00 VII-00 I-01 VII-01 I-02 VII-02 I-03 VII-03 I-04 VII-04 VI I-06 VI VI VI Average of 2005 = 100 GDP Composite Confidence Indicator Confidence indicator stabilizes, which indicates slow restoring of the GDP growth for the second half of 2009

16 Expected employment I-98 IV-98 VII-98 X-98 I-99 IV-99 VII-99 X-99 I-00 IV-00 VII-00 X-00 I-01 IV-01 VII-01 X-01 I-02 IV-02 VII-02 X-02 I-03 IV-03 VII-03 X-03 I-04 IV-04 VII-04 X-04 IV-05 VI X-05 I-06 IV-06 X-06 VI X-07 IV-08 VI IV-09 VI Months Industry Construction Trade Services Consumers despite first signs of confidence recovery, employment expectations, however, remain weak or improve only slightly in all branches as well as at consumers.

17 Conclusion: As a result of current economic downturn, there is an increasing interest in the use of economic surveys for predicting turning points in the economic cycle. Importance of Business and Consumer Surveys increased namely for their timeliness. All in all, the composite indicator in the Czech Republic reflects slow restoring of the overall confidence but the question remains, how solid this restoring can be.

18 Thank you for your kind attention!

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