Seminar on the implementation of the System of National Accounts 2008 in the Western Asia Region Muscat, Oman, May 2010 Herman Smith UNSD/DESA The financial crisis – The need for high frequency indicators

Introduction  Consultations on the Financial and Economic Crisis  The G20 Summit of April, 2009  International seminars organised by United Nations Statistics Division and Eurostat

Consultations on the crisis  High Level Forum the Long-term Development the SNA, Washington D.C., November  Official Statistics and the Impact of the Global Financial Crisis, New York, 22 February  High Level Forum on Globalization and Global Crisis: the role of Official Statistics, New York, 23 February  40th Session of the Statistical Commission

Outcome of the consultations on the crisis  2008 SNA the overarching framework for economic statistics, able to incorporates measurement issues arising from the financial crises  There was not a lack of information  Policy makers need the early detection of turning points of financial and economic trends  Remedy data gaps that the crisis has revealed  Improve the availability, periodicity and timeliness of high frequency statistics in accessible and analytically useful formats

International coordinated response  The G20 Summit of April, 2009 called for:  the UN, working with other global institutions, to establish an effective mechanism to monitor the impact of the crisis on the poorest and most vulnerable  the IMF and FSB to explore information gaps and provide appropriate proposals for strengthening data collection.

International coordinated response  the United Nations System Chief Executives Board for Coordination (CEB) at its April 2009 meeting in Paris decided to “… urgently establish an United Nations system-wide vulnerability monitoring and alert mechanism to track developments, and report on the political, economic, social and environmental dimensions of the crisis”.  the Secretary-General initiated activities to establish an UN system-wide Global Impact and Vulnerability Alert System (GIVAS) - consisting of a Global Impact and Vulnerability Data Platform and a series of Global Alert Products.

Inter Agency Group on Economic and Financial Statistics ◦ IMF (Chair), BIS, ECB, Eurostat, OECD, UN, WB established the IAG to coordinate work to explore data gaps and strengthen data collection ◦ The IAG Group addresses  key issues related to information gaps on risks in the financial sector,  data on international financial networks  vulnerabilities of domestic economies to shocks and  the development of the website on Principle Global Indicators (PGI)

International seminars on High Frequency Indicators  UNSD and Eurostat in February 2009 initiated a series of three international seminars.  The purpose of the seminars is to formulate an international statistical response to the economic and financial crisis for improved monitoring of the rapid and systemic changes in the global real economy and the financial markets and the impacts on vulnerable countries and population groups.  It is expected that the series of seminars will recommend an agreed data template for high frequency statistics, related metadata and related communication and dissemination methods and techniques

International seminars on High Frequency Indicators  The first meeting took place in Ottawa, May 2009, which discussed the development of a data template of high frequency indicators;

Outcome of the Ottawa seminar  Support for an international data template for high frequency statistics to monitor economic activity and detecting changes  determine its relevance and feasibility in terms of availability, periodicity, timeliness and dissemination through global baseline assessment  re-arrange the data template in different tiers based on analysis of global assessment  the high frequency statistics for individual countries should be complemented by analytical indicators and time series of world and regional aggregates for those high frequency statistics which are sufficiently comparable.

Outcome of the Ottawa seminar (cont)  develop a glossary of terms and definitions around high frequency statistics (covering terms like nowcast, forecast, flash, rapid and first estimate, etc.)  clarify the need to develop new manuals or update existing handbooks and guidelines on GDP flash estimates, and economic sentiment surveys and composite indicators  determine how to better communicate and disseminate data on the movement of the business cycles and trend developments

 Ottawa seminar identified a data template with 12 categories  National accounts, production and turnover indicators, prices, labour market indicators, sectoral indicators for the external, financial, government, non-financial and household sector, financial and real estate market indicators, and economic sentiment indicators  Global assessment to determine the availability, timeliness, periodicity and dissemination of high frequency indicators Global assessment of Ottawa template

Overview of response Grouping Number of responses Number in group Percentage of 2008 GDP Percentage of 2008 populationResponse rate World High income Middle income Other ESCWA

Response by question

 National Accounts mainly annual  Production and turnover – mainly industrial production – but mainly quarterly  CPI monthly – PPI and I&E indices weak  Employment data – annual  CB and Monetary stats – weak seems CB not consulted  Only 2 countries reported GG data  Almost no HH and Non-Fin corps  Weak financial market data  No residential property and composite indicators Response by Western Asia Countries

 Ottawa data template of a core set of indicators by categories with regional and world totals is feasible  The template is recognized as appropriate for monitoring rapid and systemic changes in the real economy and the financial markets  Three levels or tiers were recognized Outcome of the assessment

 Tier 1 - includes indicators that are compiled infra annually by more than 60 per cent of counties.  Tier 2 - includes indicators that are compiled infra annually by between 30 to 60 per cent of high and middle income countries and is supplemented by strategically important indicators.  Tier 3 - includes indicators below a 30 per cent response rate that can be included in national templates. Three Tier Approach

Tier 1 Indicator descriptionPeriodicity Set 1 National accounts 1.1Quarterly national accounts: Flash GDP estimateQuarterly 1.2.1GDP full release by expenditureQuarterly 1.2.2GDP full release by productionQuarterly Set 2 Production and turnover 2.1Production index for industry, by major division (mining, manufacturing, electricity, water, etc.) Monthly Set 3: Price Indicators 3.1Consumer price indexMonthly 3.2Producer price indexMonthly 3.3Import price indexMonthly 3.4Export price indexMonthly Set 4: Labour market indicators 4.1UnemploymentQuarterly 4.2Unemployment rateQuarterly 4.3Employment total and by economic activityQuarterly Set 5: External sector indicators 5.1Exports and imports (of goods and services)Monthly 5.3Official reserve assetsMonthly 5.4External debt (by sector, maturity and foreign currency)Quarterly

Tier 1 Indicator descriptionPeriodicity Set 6: Financial sector indicators 6.1Central Bank net foreign assetsMonthly 6.2Central Bank domestic lendingMonthly 6.3Central Bank reserve moneyMonthly 6.4Depository corporations net foreign assetsMonthly 6.5Depository corporations domestic lendingMonthly 6.6Depository corporations broad money liabilitiesMonthly Set 7: General government sector indicators 7.1RevenueMonthly 7.2ExpenseMonthly 7.3Net operating balance (= Revenue – Expense)Monthly Set 10: Financial market indicators 10.1Interest rates, as relevant short and long term money and bond market rates Monthly 10.2Exchange rates, as relevant spot and forward marketsMonthly 10.3Nominal and real effective exchange rateMonthly 10.4Stock market indicatorsMonthly

Tier 2 Indicator descriptionPeriodicity Set 1 National accounts 1.2.3GDP full release by incomeQuarterly Set 2 Production and turnover 2.2Production index for constructionMonthly 2.3Turnover index for retail trade by major divisionMonthly 2.4Turnover index for industry by major divisionMonthly 2.5Turnover index for other services by major division (excluding financial services and non-commercial services) Monthly 2.7New orders index for construction (building permits or housing starts) Monthly Set 4: Labour market indicators 4.4Hourly wage rateQuarterly 4.5Hours of workQuarterly Set 5: External sector indicators 5.2International investment position (IIP), specify balances and components Quarterly

Tier 2 Indicator descriptionPeriodicity Set 6: Financial sector indicators 6.7Other financial corporations balance sheet, assets and liabilities by sector. Monthly 6.8Financial corporate profitsQuarterly 6.9Financial corporate debtMonthly Set 7: General government sector indicators 7.4Net acquisition of non-financial assetsQuarterly 7.5ExpenditureQuarterly 7.6Net lending/net borrowing (= Revenue - Expenditure)Quarterly 7.7Gross debtQuarterly Set 8: Household sector indicators 8.1Household disposable incomeQuarterly 8.2Household savingQuarterly 8.3Household debtQuarterly Set 11: Real estate market indicators 11.1Residential property price indexQuarterly Set 12: Economic sentiment 12.1Consumer confidenceMonthly 12.2Business confidenceMonthly

Tier 3 Indicator description Compilation per centPeriodicity Set 2 Production and turnover 2.6New orders index for industry by major ISIC division (for those that work on order) Monthly 2.8Commodity production (as relevant at country level data on commodity productions and other indicators of economic activity) Monthly Set 9: Non-financial corporations sector indicators 9.1Non-financial corporate profitsQuarterly 9.2Non-financial corporate debtQuarterly Set 11: Real estate market indicators 11.2New house salesMonthly 11.3Existing house salesMonthly Set 12: Economic sentiment 12.3Composite Business Cycle Indicators Leading IndicatorMonthly Coincident IndicatorMonthly Lagging IndicatorMonthly

Analytical indicators  Some work was done on the type and availability of a comparable set analytical indicator to facilitate economic analysis  The availability of analytical indicators at country level at agreed periodicity would significantly enrich the analysis of the regional and global aggregates, because of its supplementary and more detailed information content

Examples of analytical indicators ◦ Inventory over sales ratio ◦ Ratio of the value of housing to household disposable income ◦ Household leverage, i.e. ratio of household net worth to disposable income ◦ Growth in equity prices relative to GDP ◦ Financial Conditions Index ◦ Etc

International seminars on High Frequency Indicators  The second meeting took place in Scheveningen, December 2009, which discussed a global assessment of the Ottawa data template and the development of methodology and guidance on high frequency indicators.

Scheveningen seminar Five themes : ◦ the role of sentiment indicators in tracking economic trends; ◦ the role of composite indicators in tracking business cycles; ◦ flash estimates of gross domestic product; ◦ the analytical framework for assessing rapid economic changes; and ◦ communication and dissemination of indicators Outcome: ◦ To facilitate the work on the outcome of the seminar five work groups were formed

Work groups  The Working Group on Economic Sentiment Indicators will conduct a global survey on sentiment indicators and analyse existing practices. Moreover, UNSD will establish a knowledge platform on economic sentiment indicators.  The Working Group on Composite Indicators will undertake the review of existing guidelines on the collection, compilation and application of composite indicators. ◦ Colloquium – Sept ◦ CIRET – Oct 2010

Work groups  The Working Group on Flash GDP will advance the work on terminology, conceptualisation and purpose of flash GDP estimates.  The Working Group on the Data Template and Analytical Indicators will finalise the data template, meta data and related analytical indicators.  The Working Group on Communication and Dissemination will create a knowledge base and review the availability of existing visualisation tools and methodological guidance.

Third International Seminar on High Frequency Statistics  Fall 2010  Purpose ◦ Discuss the work of the working groups ◦ To prepare a report to the UNSC on  an agreed statistical framework of HFI  international comparability of HFI,  the related analytical framework for monitoring early warning and business cycle indicators  the communication and dissemination of HFI

Conclusion  The financial crisis revealed the need for HFI for the early detection of changes in economic trends  The availability of structural and annual data tell us about the past  The need is for information about the present  This will facilitate more timely policy responses  Data collection practises need to be adapted to facilitate the dissemination of HFI  HFI are also relevant for expanding the scope and detail of the national accounts

Useful links Reports of the previous meetings:  Ottawa   Scheveningen  SNA News and Notes Issue 29 

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