MALAYSIAN ECONOMIC INDICATORS (MEI) : LEADING, COINCIDENT & LAGGING INDEXES

WORKSHOP ON SHORT-TERM ECONOMIC STATISTICS 8th OCTOBER 2014 HANGZHOU, CHINA MALAYSIAN ECONOMIC INDICATORS (MEI): LEADING, COINCIDENT & LAGGING INDEXES JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

OUTLINE • Introduction • Objective • The Development of MEI • The Components of Composite Index • Analysis • Limitation • Current Development JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

INTRODUCTION • The initial development of Business Cycle Indicators (BCI) was started in September 1993. • In 1995, the first set of BCI was developed comprises of two composite indexes: the Coincident Index and the Leading Index using the methodology known as Moore-Shiskin (with trend adjustment). JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

INTRODUCTION • It was used internally before it was published to the public in January 2001. • Consists of Leading, Coincident and Lagging for Composite Indexes. JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

INTRODUCTION • While the Diffusion Indexes consists of Diffusion Indexes for Leading and Coincident. • The Leading Index (LI) measures anticipations of the overall economic activity in the months ahead. JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

INTRODUCTION • The Coincident Index (CI) is a comprehensive measure of the overall current economic performance. • Study shows that there is strong relationship between CI and GDP (r = 0.86). • The CI is also used to date the business cycles reference periods recession and recovery) in Malaysia. JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

INTRODUCTION r = 0.86 JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

INTRODUCTION • The Lagging Index is to validate the signal of the Leading and Coincident Indexes. • The Diffusion Index is a complement to the Composite Index and used to assist in making a decision especially in determining turning point of economic cycle. JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

INTRODUCTION Coincident Diffusion Index and Business Cycle JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

OBJECTIVE • To identify the cyclical phase and the direction of near term economy. • To monitor Malaysian economic performance on a monthly basis. • To assist the policy makers, investors, researchers and public to assess the economic performance. JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

THE DEVELOPMENT OF MEI JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

THE COMPONENTS OF COMPOSITE INDEX • The selection is based on the guideline by the Business Cycle Indicators Handbook, namely: • Conformity to business cycle • Consistent timing • Economic significance JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

THE COMPONENTS OF COMPOSITE INDEX • Statistical adequacy • Smoothness • Promptness JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

THE COMPONENTS OF COMPOSITE INDEX • The selected time series then are tested using Lead/Lag Table. JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

THE COMPONENTS OF COMPOSITE INDEX • Lead-Lag Table for Peak and Trough - Bursa Malaysia Industrial Index JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

THE COMPONENTS OF COMPOSITE INDEX JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

COMPOSITE LEADING INDEX JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

ANALYSIS • The growth cycle is a fluctuation of the aggregated economic activity along its long term trend. The growth is generated through the deviation of index from its long term trend. • Business cycle is a fluctuation of the aggregated economic activity. There are two main phases namely expansion and recession phases. JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

ANALYSIS JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

ANALYSIS Determination of Peaks and Troughs for Growth Cycle JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

ANALYSIS Malaysian Growth Cycles Reference Periods JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

ANALYSIS Determination of Peaks and Troughs for Business Cycle JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

ANALYSIS Malaysian Business Cycles Reference Periods JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

LIMITATION • The LI is unable to measure or predict the magnitude of any changes of economic activity. The index shows the direction of the economy in advance. • The CI does not represent the level of the current economic situation. Thus it should not be interpreted as the level of current monthly Gross Domestic Product (GDP). JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

LIMITATION • The economic indicators unable to take into account the internal or/and external shock to the economy. JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

CURRENT DEVELOPMENT • Review the existing components. • Identify and evaluate new potential time series data. • Develop Malaysian Business Cycle Clock (MBCC). JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

WAN SITI ZALEHA BINTI WAN ZAKARIADEPARTMENT OF STATISTICS, MALAYSIAECONOMIC INDICATORS DIVISIONwszwz@stats.gov.myhttp://www.statistics.gov.my JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

THANK YOU JABATAN PERANGKAAN MALAYSIA DEPARTMENT OF STATISTICS, MALAYSIA

MALAYSIAN ECONOMIC INDICATORS (MEI) : LEADING, COINCIDENT & LAGGING INDEXES