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Business Cycle Clock – Statistics Explained

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Eurozone business cycle clock indicators

According to the latest Business Cycle Clock indicators, the euro area economy is in the slowing phase of the growth cycle, with growth accelerating from November 2023 onwards.

From April to October 2023, the euro area economy was in the slowdown phase of its growth cycle, with growth slowing. This recent shift towards faster growth can be seen as potentially improving business cycle conditions. The continuation of the slowdown phase of the euro area economy is also confirmed by a dating to the third quarter of 2023, which identifies the peak of the growth cycle in the fourth quarter of 2022. Several factors create a high degree of uncertainty, including ongoing international geopolitical tensions and the restrictive monetary policy adopted by the European Central Bank.

Three business cycle clocks representing the euro area for three months each: July 2023, August 2023, and September 2023. These clocks are structured according to the so-called αABβCD approach, which is based on a series of empirically observed turning points. Acceleration, business and growth cycle changes. Clockwise, from α to A is one quadrant of the clock. The time from A to B is 1/8th. B to β is 1/8. From β to C is 1/8. C to D is 1/8. Finally, D ~ α are the clock quadrants. In each of the three month clocks, the hands are located in sections C-D.

Figure 1: Eurozone business cycle clock indicators
sauce: Eurostat (BCC)

The BCC tool's signals, shown in Figure 1, are based on three coincident cycle indicators: the Growth Cycle Coincidence Index (GCCI), the Business Cycle Coincidence Index (BCCI), and the Accelerated Cycle Coincidence Index (ACCI). They are estimated in a detection exercise (see Context for methodology details).

Growth cycle matching index

The Growth Cycle Coincidence Index (GCCI) for the fourth quarter of 2023 remained stable at 1.0, indicating that the euro area economy is in a slowdown phase.

Line chart showing the euro area growth cycle congruence indicator as the probability of slowing on a monthly basis from January 2019 to March 2023.

Figure 2: Eurozone growth cycle congruence indicator
(Possibility of deceleration)
sauce: Eurostat (proprietary calculation)

Business cycle consistency index

The Business Cycle Consistency Index (BCCI) remained stable at zero in the fourth quarter of 2023, confirming that there are no signs of economic recession.

Line chart showing the Eurozone business cycle consistency indicator as the probability of recession on a monthly basis from January 2020 to November 2023.

Figure 3: Eurozone cyclicality indicators
(Possibility of economic recession)
sauce: Eurostat (proprietary calculation)

Acceleration period match indicator

The Acceleration Cycle Coincidence Index (ACCI) decreased from 0.9 in October 2023 to 0.1 in December 2023, indicating that the euro area economy is likely to move into an acceleration phase.

Line graph showing the euro area acceleration cycle coincidence indicator as the probability of a deceleration in economic activity growth on a monthly basis from January 2020 to November 2023.

Figure 4: Eurozone acceleration cycle coincidence indicator
(Probability that the growth rate of economic activity will slow down)
sauce: Eurostat (proprietary calculation)

context

The main purpose of the Business Cycle Clock (BCC) is to complement the information contained in the Euro Indicators Dashboard by extracting signals about the state of the economy. The BCC tool depicts the cyclical development of the euro area economy in a visually appealing and intuitive way. The clock is structured according to the so-called αABβCD approach (see Figure 5), which is based on empirical observations of a series of turning points in acceleration, business, and growth cycles.

Three line graphs showing the series of empirically observed turning points that make up acceleration, business, and growth cycles. Observable trends highlight momentary growth rates, deviations from the trend, slowdowns, and periods of recession.

Figure 5: Cycle of Acceleration, Business and Growth

of business cycle It aims to reproduce cycles in global economic activity levels. Tipping points in this cycle, called B for peak and C for trough, separate periods of negative growth (recession) from periods of positive growth (expansion).of growth cycle It can be defined as the deviation of a reference series (such as GDP) from the trend. There are turning points in the growth cycle, labeled peaks A and valleys D. Peak A is reached when the growth rate is below the trend growth rate. Symmetrically, trough D is reached when the growth rate crosses the trough again.of acceleration cycle, also known as the growth rate cycle, concerns increases and decreases in the growth rate of economic activity. The peak, or turning point α, represents a local maximum in the growth rate. Conversely, a trough (turning point β) indicates a minimum value of the growth rate. Acceleration cycles are characterized by the greatest number of fluctuations and high volatility. The BCC tool is based on two complementary exercises. The dating system displays the results in a line graph at the bottom of the tool, and the detection system displays the results in a clock at the top of the tool (see Figure 6).

Screenshot of the Business Cycle Clock tool available at the following link: https://ec.europa.eu/eurostat/cache/bcc/bcc.html

Figure 6: Business cycle clock – top and bottom

of date practice is designed to simultaneously identify historical turning points in acceleration, business, and growth cycles, with reference to the αABβCD framework. Tipping points are identified by nonparametric dating rules similar to those proposed by Harding and Pagan (2002).[1]. The main reference series for dating is the volume of quarterly GDP supplemented by the Industrial Production Index (IPI). Dating is done quarterly. The tipping points identified in the past three years are considered provisional and may be revised subsequently.

of motion detection It is based on a purely parametric approach using Markov switching models as the main modeling methodology. His three coincident cycle indicators are estimated: Business Cycle Coincident Index (BCCI), Growth Cycle Coincident Index (GCCI), and Accelerated Cycle Coincident Index (ACCI). The Business Cycle Concordance Index (BCCI) indicates the probability of a recession and indicates the peaks and troughs of the economy. The Growth Cycle Coincidence Index (GCCI) indicates the probability of economic slowdown and indicates the peaks and troughs of the growth cycle. The Acceleration Cycle Concordance Index (ACCI) provides the probability of growth rate deceleration and indicates the peaks and troughs of the growth rate cycle.

Simultaneously estimate growth and business cycle turning points using a multivariate Markov switching model. The turning point of the acceleration cycle is estimated independently using a univariate Markov switching model. These estimates are performed monthly. The hand positions within the BCC tool are based on the values ​​of his three periodic coincidence indicators of acceleration, business, and growth cycles, specifically their positions relative to his 0.5 threshold (see Table 1).

A table showing how the clock hands are calculated based on the clock sector for the Growth Cycle Match Index, Business Cycle Match Index, and Acceleration Cycle Match Index.

Table 1: How to calculate the position of clock hands

The clock has six sectors (see Figure 7). This can be interpreted as follows:

  • In the upper and lower right quadrants of the clock, sectors 1, 2, and 3 show a decline in growth rates. In the first quadrant, the growth rate remains above the trend growth rate. At point A, the growth rate is below the trend growth rate. In the second quadrant, the growth rate is below the trend growth rate. It becomes negative at point B, and the growth rate is minimum at point β.
  • In the lower left and upper left quadrants of the clock, sectors 4, 5, and 6 show increasing growth rates. In the third quadrant, growth remains below trend. It becomes positive at point C and exceeds the trend growth rate at point D.

Sector names are shown in Figure 7.

A clock that shows the periodic phases indicated by the Business Cycle Clock in quadrants and sectors. Clockwise, α to A are the clock quadrants representing expansion with slowing growth. From A to B, the speed decreases by a factor of 8. From B to β, 1/8 represents recession. Eighths of the clock to C represents a recession with accelerating growth. C through D represent recovery at one-eighth of the clock. Finally, D ~ α is the clock quadrant representing expansion as growth accelerates.

Figure 7: Cyclical stages indicated by the business cycle clock in quadrants and sectors

BCC and cycle coincidence indicators are explained in detail in several chapters of the Handbook on Cyclical Composite Indicators and Eurostat's Business Cycle Clock – User Guide (see also Billio, Ferrara, Mazzi, Moauro (2016))[2]Billio, Ferrara, Mazzi, and Ruggeri-Cannata (2016)[3]Mazzi (2015)[4]). An overview of this methodology can also be found in Eurostat Business Cycle Clock: A Complete Overview of the Tool by Ruggeri-Cannata (2021)[5]). Information on how the tool has performed during the pandemic can be found in Eurostat's Business Cycle Clock and the Pandemic: Some Considerations (Ruggeri-Cannata, Ronkowski (2022)).[6]).



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