1. Leading Indicators for Russia: Did They Actually Lead During the Crisis of 2008-2009 French-Russian Academic and Research Conference ‘Economics, Politics, Society: New Challenges, New Opportunities’ Moscow, October 2010 State University – Higher School of Economics (Moscow, Russia) “Development Center” Institute Sergey Smirnov

2. Main Purpose & Limitations Purpose  Not to construct a new (‘really good’) leading indicator  But to test existing ones in their ability to predict cyclical turning-points in ‘real-time’ Limitations  Only last recession (2008-2010) 2

3. Three Consecutive Tasks  To survey all available cyclical indicators for Russia  To choose regularly (monthly) published between them  To check the last ones for their practical usefulness in ‘real-time’ 3

4. General Logic & Methods Main question  Was it actually possible to predict a turning point some months before it occurred – relying on the dynamics of one or another leading indicator? Some technical remarks  All calculations are based on the concept of ‘growth rate cycles’ (not classic ‘business cycles’)  Y-o-Y percent changes (‘a month to the same month of the previous year’) are considered  Official ‘basic branches of economy’ index is used as a proxy for coincident cyclical index (CCI) 4

5. A Full Survey of Available Leading Indicators for Russia IndicatorProducerFatal Shortcomings for Our Comparisons Internationally Accepted Indexes for Russia 1 Purchasing Managers’ Index (PMI) Markit EconomicsNo 2Composite Leading Index (CLI)OECDNo Russian Indexes for Russia, Classic Type: Composite Leading Indexes 3Composite Leading Index (CLI)Development Center (DC)No 4Composite Leading Index (CLI) Institute of Economy (IE), Russian Academy of Science Figures never published Russian Indexes for Russia, Classic Type: Indexes based on Business Tendency Surveys 5Industrial Confidence Index (ICI)Higher School of Economics (HSE)No 6Industrial Confidence Index (ICI)Rosstat Too short comparable time-series. Cyclical trajectory is quite similar to ICI’s by HSE 7Industrial Optimism Index (IOI) The Institute for the Economy in Transition (IET) No Russian Indexes for Russia: More Exotic 8Leading GDP Indicator Renaissance Capital ‑ New Economic School (RenCap-NES) Short history. The indicators form rules out any ordinary comparisons with monthly indicators 9Business Activity Index (BIF) ‘Finance.’ (one of Russian business journals) Irregular news-releases. Too large of a publication lag (up to 3 months) 10 Business Activity Index (The Barometer) ‘Business Russia’ Association (‘Delovaya Rossiya’) Too tangled of a methodology. Incomparability of neighboring observations. Short history. 11Business Activity Index The Russian Managers Ass’n & Kommersant Newspaper Too tangled of a methodology. Discontinued in April 2009 5

6. Five Indicators at Five Moments in the Past 5 moments in the past  Oct. 2008 (shortly after the peak)  Feb. 2009 (near the trough)  July 2009 (shortly after the trough)  April 2010 (before the peak)  Oct. 2010 (just now) 5 regular & timely indicators  PMI by Markit  CLI by OECD  CLI by DC  ICI by HSE  IOI by IET 6

7. 5 regular & timely indicators Indicator & Producer Was it Useful to Forecast a Turning Point? PMI by MarkitYes CLI by OECDNo CLI by DCYes ICI by HSENo IOI by IETYes Cyclical Dynamics as It Appeared in… October 2008 (shortly after the peak) 7

8. Cyclical Dynamics as It Appeared in… February 2009 (near the trough) 5 regular & timely indicators Indicator & Producer Was it Useful to Forecast a Turning Point? PMI by MarkitMay be CLI by OECDNo CLI by DCYes ICI by HSEYes IOI by IETMay be 8

9. Cyclical Dynamics as It Appeared in… July 2009 (shortly after the trough) 5 regular & timely indicators Indicator & Producer Was it Useful to Forecast a Turning Point? PMI by MarkitYes CLI by OECDNo CLI by DCYes ICI by HSEYes IOI by IETYes 9

10. Cyclical Dynamics as It Appeared in… April 2010 (before the peak) 5 regular & timely indicators Indicator & Producer Was it Useful to Forecast a Turning Point? PMI by MarkitNo CLI by OECDNo CLI by DCYes ICI by HSENo IOI by IETNo 10

11. Cyclical Dynamics as It Appeared in… October 2010 (just now) 5 regular & timely indicators Indicator & Producer What is it saying to us about future growth rates? PMI by MarkitSlowdown CLI by OECDStability CLI by DCA trough is near ICI by HSEStability IOI by IETAcceleration 11

12. Was an Indicator Useful to Forecast Approaching Turning Point? IndicatorOct. 2008Febr. 2009July 2009June 2010 PMI by MarkitYesMay beYesNo CLI by OECDNo CLI by DCYes ICI by HSENoYes No IOI by IETYesMay beYesNo 12

13. Conclusions  Between monthly indicators the CLI by DC is the champion! Its trajectory during this crisis looks like as if it is taken from a textbook (see the chart on the left)  Unexpected: CLI by OECD is almost entirely useless in forecasting turning points (because of too large a lag and maybe some ‘oversmoothing’)  Other leading indicators for Russia are more or less useful but their track records are not very impressive 13

14. Possible Extensions  Construction of weekly leading indicators for Russia  Similar audit of leading indicators for other countries (US, Germany, etc.) 14