Global Economy
Composite leading indicators point to weakening growth in the Eurozone
By Michael Hennigan, Finfacts founder and editor
Oct 8, 2014 - 3:20 PM

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Composite leading indicators (CLIs), designed to anticipate turning points in economic activity relative to trend, point to a mixed outlook across major economies, characterised by weakening growth in the Eurozone and stable growth in most other major economies.

The CLIs for the OECD area as a whole, as well as for Canada and the United States, continue to signal  stable growth momentum. Among other major economies, a stable growth momentum is also anticipated in Brazil, China and Russia.

In Japan, the CLI points to a loss in growth momentum, though this may be related to one-off factors. In Europe, signs are emerging of a loss of growth momentum in the Eurozone, with stronger signals in the case of Germany and Italy, while in France and in the United Kingdom the outlook continues to point to stable growth.

India is the only major economy where the CLI points to a pick-up in growth momentum.

An OECD Composite Leading Indicator, as the name suggests, is constructed from a small number of economic time series that have similar cyclical fluctuations to those of the business cycle, and moreover have a tendency to turn earlier than the business cycle. The business cycle is typically represented by movements in GDP around its long term trend. The OECD CLIs are composite indicators with components that:

  • measure early stages of production;
  • respond rapidly to changes in economic activity;
  • are sensitive to expectations of future activity or
  • are control variables that measure policy stance.

A large set of component series, selected from a wide range of economic indicators, are used in constructing CLIs (around 200 series are used in total, about 5-10 for each country). CLIs are calculated for 33 OECD countries, 6 non-member economies and 8 zones. They are calculated in three forms: amplitude adjusted, trend-restored, and year-on year growth rate. These are comparable, respectively, with the de-trended reference series, the original reference series  and the year-on-year growth rate of the reference series. The press release focuses on the amplitude adjusted form of the CLI, and includes the major countries and zones.

The OECD-Total covers the following 33 countries: Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States.

The G7 area covers Canada, France, Germany, Italy, Japan, United Kingdom and United States.

The Euro area (only Euro area countries that are members of OECD) covers the following 15 countries: Austria, Belgium, Estonia, Finland, France, Germany, Greece, Italy, Ireland, Luxembourg, the Netherlands, Portugal, Slovak Republic, Slovenia and Spain.

The Major Five Asia area covers China, India, Indonesia, Japan and Korea.

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