1. Tracking and Anticipating Singapore’s Growth Cycles
International Seminar on Early Warning and Business Cycle Indicators
15 December 2009

2. Outline Singapore’s Composite Leading Index (CLI)
CLI Components and Compilation
Performance of CLI
Does CLI Provide Early Warning?

3. Singapore’s Composite Leading Index (CLI)

4. Singapore’s Composite Leading Index
Established in the aftermath of the 1985 recession with the help of the Centre for International Business Cycle Research at Columbia University
Reviewed and revised in 2004 to ensure its continuing relevance and enhance its ability to anticipate growth cycle fluctuations

5. Classical Cycles and Growth Cycles
Expansions and contractions in the levels of aggregate economic activity
Growth Cycles
Deviations from the long-term trend growth rate of the economy – “deviation cycles”
More relevant for economies exhibiting long upward trend like Singapore

6. CLI Components and Compilation

7. Selection Criteria for CLI Components
Economic Significance
Express early sentiment and expectations of economic agents
Measure activity during early stages of production
Cyclical Behaviour
Cycles consistently lead cycles of reference series
No missing or extra cycles
Leads at turning points are relatively homogeneous
Timeliness and Periodicity
Monthly series preferred to quarterly series

8. Components of the CLI Total New Companies Formed
Business Expectations of Wholesale Trade, Qtrly
Business Expectations of Stock of Finished Goods (Mfg), Qtrly
Money Supply (M2)
Stock Exchange of Singapore Indices
US Purchasing Managers’ Index
Domestic Liquidity Index
Non-Oil Retained Imports
Total Non-Oil Seaborne Cargo Handled

9. CLI Compilation Method
Adopted The Conference Board’s (TCB) approach
Compute month-on-month changes for each component
Adjust month-on-month changes to equalise volatility of each component
Sum the components’ adjusted month-to-month changes for each month to obtain the growth rate of CLI
Level of the index is computed using the symmetric percent change formula
With some differences
Quarterly components (i.e. Business Expectations) are interpolated into monthly data using cubic spline
CLI growth rates are not adjusted to equate their trends to the Composite Coincident Index

10. Methodology to Identify CLI Turning Points
Step 1: Obtain six-month smoothed annualised rate (SMMAR)
Step 2: Identify Turning Points
Bry-Boschan (1971) algorithm is used to estimate the peak and trough of CLI SMMAR

11. Performance of the CLI

12. CLI Reference Series: CCI
Singapore’s Composite Coincident Index (CCI), which encompasses a broad spectrum of economic activities, is used as the basis for identifying Singapore’s growth cycles
Singapore’s CCI was developed in 1986 and reviewed in As with CLI, it was developed and updated using TCB’s approach

13. Methodology to Identify CCI Growth Cycles
Step 1: Trend Estimation
Phase-Average Trend (PAT) method developed by NBER to separate long-term trend from shorter-term cycles so that underlying cyclical fluctuations are more prominent
Previously used by OECD. OECD switched to Hodrick-Prescott (HP) Filter in late We are presently assessing the possibility of using HP Filter.
Step 2: Identify Turning Points
Bry-Boschan (1971) algorithm to estimate the peak and trough dates in “detrended series”

14. Historical Performance of CLI in Predicting Growth Cycles
CLI SMMAR leads historical growth cycles
-15 -2 -2 -3 -7
Jul 97-Nov 98
Asian Financial Crisis
Downturn in global electronics cycle
Aug 00-Oct 01
Global economic downturn
Severe downturn in global electronics cycle
Apr 02-Apr 03
Broad-based weakness in domestic economy

15. Historical Performance of CLI in Predicting Classical Cycles
Classical Cycles can be identified by applying Bry-Boschan (1971) algorithm to identify the turning points in CCI
CLI leads historical classical cycles
-12 -4 -2 -3 -6

16. Does CLI Provide Early Warning?

17. Does CLI Provide Early Warning?
Singapore experienced 4 consecutive quarters of negative quarter-on-quarter growth from 2Q08 to 1Q09
How did CLI perform as a early warning system during that period?

18. Does CLI Provide Early Warning?
Jun 07 peak in CLI SMMAR
Sep 08 collapse of Lehman Brothers
Oct 07 peak in CLI
Dec 08 troughs in CLI SMMAR and CLI

19. Does CLI Provide Early Warning?
Forecast 5.6%
Oct 07 peak in CLI
4Q07 growth 6.0%
Forecast 2.2%
Sep 08 collapse of Lehman Brothers
3Q08 growth -0.5%
2Q08 growth 1.9%
Forecast 4.2%
Forecast 5.5%
1Q08 growth 7.2%

20. Does CLI Provide Early Warning?
Yes, the CLI does provide early warning, turning down before the onset of a recession and up before recovery.
However, most analysts and commentators at the time were sceptical that the economy was about to turn projecting a continuation of the then prevailing trend.
Compilers may need to do more to report on and draw attention to the CLIs
Users will need to have the discipline to pay attention to the CLIs, particularly when they are or seem to be signalling the possible onset of turning points

21. References
Bry, G., and C. Boschan, Cyclical Analysis of Time Series: Selected Procedures and Computer Programs. New York: NBER.
OECD, Upcoming changes to the OECD Composite Leading Indicators to be implemented in the December 2008 MEI. Available at:
[Accessed 4 November 2009]