REAL SECTOR CONFIDENCE INDEX FROM THE BTS OF CBRT

Transcription

1 REAL SECTOR CONFIDENCE INDEX FROM THE BTS OF CBRT Ece Oral, S.Özge Tuncel Central Bank of the Republic of Turkey Research and Monetary Policy Department November 21,

2 OUTLINE Business Tendency Survey (BTS) Characteristics Questions Real Sector Confidence Index (MBRKGE) Suggested Changes in BTS 2

3 BTS Characteristics The Business Tendency Survey of CBRT (BTS) is intended to find out the senior managers assessments and expecatations on their firm, their sector and general economy. BTS has been adopted from the Industrial Trends Survey of the Confederation of British Industry. Starting date: December 1987 Period: Monthly 3

4 BTS Characteristics (Cont.) Frame list: The industrial enterprises that are ranked among the First 500 Industrial Enterprises of Turkey and the Next 500 Major Industrial Enterprises of Turkey in the list prapared by the Istanbul Chamber of Industry. Sectors covered: food, textiles, forestry, paper products, chemistry, stone, metals, machine-vehicle, mining-quarrying, energy Food, textiles, chemistry and machine-vehicle consititute 75% of the total. Non-manufacturing sectors (i.e. mining-quarrying and energy) constitute 8% of the total. 4

5 BTS Characteristics (Cont.) Sampling Method: Non-probabilistic purposive Sampling Unit: Enterprises Reporting Unit: Senior Managers Participation in the survey is voluntary. Sample Size: 830 approximately Recent Response Rate: 55% Data Collection: mail, Revision: No revision since January

6 BTS Questions Questions are aimed at establishing respondents assessments and expectations on their firm, their sector and general economy 34 questions in total Majority of the questions are qualitative Few quantitative questions on PPI inflation and interest rate expectations Questions on trends (recent past), expectations (near future) and current situation Responses for qualitative questions: 3-point Likert Scale, ranking some factors 6

7 BTS Questions (cont.) Variables covered are about: demand (total, domestic, export) employment investment production stocks (finished goods, raw materials) cost and selling prices finance requirement general economy (business situation, export prospects, inflation and interest rate) 7

8 BTS Questions on Business in Industry Question 1: Your opinion about the general course of business in your industry, compared with previous month 8

9 BTS Questions on Capacity & Employment Question 4: Your capacity utilization compared with previous month Question 5: What is the level of your productive capacity in accordance with your expectations on demand for the next twelve months Question 12: Total employment (last and next three months) 9

10 BTS Questions on Output Question 15: Volume of output (last and next three months) Question 24: According to your existing orders received or production plan, how many months is your production programme Question 25: Over the next quarter, which factor(s) might limit the production, rank according to degree of importance 10

11 BTS Questions on Stocks Question 11: Amount of monthly stocks of finished goods this month Question 18: Volume of raw-material stocks (last and next three months) Question 20: Stocks of finished goods (last and next three months) 11

12 BTS Questions on Investment Question 3: How much investment expenditure do you expect to realise over the next twelve months Question 27: Over the next twelve months, what is the main reason for the planned expenditures on building, plant or equipment, rank according to degree of importance Question 28: Which factor(s) might limit the realization of these expenditures on building, plant or equipment, rank according to degree of importance 12

13 BTS Questions on Domestic Demand Question 13: Amount of new orders received from the domestic market (last and next three months) Question 16: Volume of goods sold in the domestic market (last and next three months) 13

14 BTS Questions on Exports Question 2: Your opinion about export prospects over the next three months compared with previous month Question 10: Amount of export orders received this month Question 14: Amount of new orders received from the export market (last and next three months) Question 17: Volume of exported goods (last and next three months) Question 26: Over the next quarter, which factor(s) might limit your export orders, rank according to degree of importance 14

15 BTS Questions on Orders Question 9: Total amount of orders received this month Question 19: Volume of work in progress (last and next three months) 15

16 BTS Questions on Inflation Question 29: Over the next three months, what is your expectation for inflation (producer prices) rate Question 30: Over the next twelve months, what is your expectation for inflation (producer prices) rate Question 31: What is your expectation for year-end inflation (producer prices) rate 16

17 BTS Questions on Cost & Prices Question 21: Average unit cost (last and next three months) Question 22: Average price for new orders received from the domestic market (last and next three months) Question 23: Average price for new export orders (last and next three months) 17

18 BTS Questions on Sales Revenues & Financing Question 6: What is the level of your sales revenues compared with previous month Question 7: What is the level of your past-due receivables compared with previous month Question 8: What is the finance requirement of your firm for the next month compared with previous month 18

19 BTS Questions on Interest Rates Question 32: Over the next three months, what is your expectation for short term Turkish Lira credit interest rate Question 33: Over the next three months, what is your expectation for short term Turkish Lira credit interest rate Question 34: Over the next twelve months, what is your expectation for short term Turkish Lira credit interest rate 19

20 Real Sector Confidence Index The real sector confidence index (MBRKGE) is constructed to provide an indicator of short-term business conditions for economic policy makers and business managers due to the need of early warning indicators in order to foresee financial and economic crises. Reference series: Industrial Production Index (IPI) 20

21 Real Sector Confidence Index (cont.) Basic criteria for selecting questions of MBRKGE; Cross Correlation Analysis Peak-Trough Analysis Low Volatility Economic Significance 21

22 Real Sector Confidence Index (cont.) Questions comprising MBRKGE; General economic situation (q1) Export oppurtunities (q2) Investment expenditures (q3) Total orders (q9) Monthly stocks of finished goods (q11) Employment-next 3 months (q12_2) Production-next 3 months (q15_2) Goods sold in domestic market-last 3 months (q16_1) Raw material stocks-last 3 months (q18_1) 22

23 Real Sector Confidence Index (cont.) Real Sector Confidence Index (MBRKGE) Cycles of IPI Economic Recession Gulf War 1994 Crises Russian Crises Bottom of 2001 Crises Dec.87 Marc.89 Jun.90 Sep.91 Dec.92 Marc.94 Jun.95 Sep.96 Dec.97 Marc.99 Jun.00 Sep.01 Dec.02 Marc.04 Jun.05 Sep.06 Correlation between the cycles of IPI and MBRKGE is found to be approximately 0.59 at lag 3. 23

24 Real Sector Confidence Index (cont.) MBRKGE MBÖNCÜ-SÜE (right scale) Dec.87 Marc.89 Jun.90 Sep.91 Dec.92 Marc.94 Jun.95 Sep.96 Dec.97 Marc.99 Jun.00 Sep.01 Dec.02 Marc.04 Jun.05 Sep.06 Correlation between the official composite leading indicator of the Turkish economic activity (MBÖNCÜ-SÜE) and MBRKGE is found to be around 0.90 at lag 0. 24

25 Real Sector Confidence Index (Cont.) Questions of MBRKGE General economic situation (q1) Export prospects (q2) Investment expenditures (q3) Total orders (q9) Monthly stocks of finished goods (q11) Employment (q12_2) Volume of output (q15_2) Goods sold in domestic market (q16_1) Raw material stocks (q18_1) Related Quantitative Series* Industrial Production Index (Manufacturing, Private) Export of Goods and Services Machinery Expenditure Industrial Production Index (Manufacturing, Private) Changes in Stocks Production Workers (Private) Industrial Production Index (Manufacturing, Private) Questions of MBRKGE Quarterly Y- o- Y % M ean Change Quarterly M ean Y- o- Y % Change Quarterly M ean Y-o-Y % Change Quarterly M ean Detrended Quarterly M ean Quarterly M ean Y-o-Y % Change Quarterly Transformation Related Quant. Series** Lead** Cross- Corr. M ean Y-o-Y % Change Private Consumption Quarterly M ean Y-o-Y % Change Import Volume of Intermediate Goods - Y-o-Y % Change

26 Real Sector Confidence Index (Cont.) Balance 1 Balance Industrial Production Index (Annual Percentage Change) Goods and Services Export (Annual Percentage Change) Q1 1989Q3 1991Q1 1992Q3 1994Q1 1995Q3 1997Q1 1998Q3 2000Q1 2001Q3 2003Q1 2004Q3 2006Q1 1988Q1 1989Q4 1991Q3 1993Q2 1995Q1 1996Q4 1998Q3 2000Q2 2002Q1 2003Q4 2005Q3

27 Real Sector Confidence Index (Cont.) Balance Machinery (Annual Percentage Change, Secondary Axis) Q1 1989Q4 1991Q3 1993Q2 1995Q1 1996Q4 1998Q3 2000Q2 2002Q1 2003Q4 2005Q3 1988Q1 1990Q1 1992Q1 1994Q1 1996Q1 1998Q1 2000Q1 2002Q1 2004Q1 2006Q1 Balance 9 Industrial Production Index (Detrended, Secondary Axis)

28 Real Sector Confidence Index (Cont.) Balance 11 Changes in Stocks (Secondary axis) Balance 12_2 Index of Production Workers (Annual Percentage Change) Q1 1988Q1 1989Q3 1991Q1 1992Q3 1994Q1 1995Q3 1997Q1 1998Q3 2000Q1 2001Q3 2003Q1 2004Q3 2006Q1 1988Q1 1989Q3 1991Q1 1992Q3 1994Q1 1995Q3 1997Q1 1998Q3 2000Q1 2001Q3 2003Q1 2004Q3 28

29 Real Sector Confidence Index (Cont.) Balance 15_2 Industrial Production Index (Annual Percentage Change) Q1 1990Q3 1992Q1 1993Q3 1995Q1 1996Q3 1998Q1 1999Q3 2001Q1 2002Q3 2004Q1 2005Q3 1988Q1 1989Q3 1991Q1 1992Q3 1994Q1 1995Q3 1997Q1 1998Q3 2000Q1 2001Q3 2003Q1 2004Q3 2006Q1 Balance 18_1 Balance 16_1 Private Consumption (Y-o-Y Change) Import Volume of Intermediate Goods (Secondary Axis) Jan.95 Apr.96 Jul.97 Oct.98 Jan.00 Apr.01 Jul.02 Oct.03 Jan.05 Apr.06

30 Suggested Changes in BTS Several modifications in BTS are suggested in order to improve its performance harmonise it to the EU Industry Survey 30

31 Suggested Changes in BTS (cont.) Modifications should be based on 4 aspects; sampling weighting questions timing 31

32 Suggested Changes in BTS (cont.) Suggested modifications in sampling; Sector caverage of the sample should be enlarged in order to improve its representativeness. Suggested frame comprises private companies that have at least 10 employees and contributes 80% of the value added in their sectors at 4- digit sector level. The sample unit of the current survey which is local unit can be kept in the new survey. Participants from the companies that operate in more than one sector should be requested to reply the questions based on the main activity of their company. Sample can be drawn by either cut-off or stratified sampling method. 32

33 Suggested Changes in BTS (cont.) Suggested modification in weighting; Survey results are disseminated without weighting in the current implementation. The results of the sectors should be weighted by their production values in the new setting. 33

34 Suggested Changes in BTS (cont.) There are limitations in some of the BTS questions; Most of the respondents perceive the questions on similar subjects in the same manner, so that they give close answers. Correlations within each group of questions are quite high (between ). Most of the respondents cannot distinguish the last 3 months trends from the next 3 months expectations. Correlations between the last and the next three months periods are in the range of Most of the respondents are permanently pessimistic in answering questions on financial requirement, export orders and average unit cost. Some BTS questions do not match completely with EU Industry Survey. 34

35 Suggested Changes in BTS (cont.) Suggested modifications in BTS questionnaire are as follows; All of the EU Industry Survey questions (monthly and quarterly) should be included in the new survey. In this context, questions 12_2, 15_1, 15_2, 22_2 and 24 should remain in the survey; while the wording of questions 5, 9, 10, 11 and 25 should be examined and appropriate modifications should take place. Questions 1, 3, 13_1, 13_2, 14_1, 14_2, 21_1, 21_2, 30 and 32, which exhibit satisfactory performance should be retained. 35

36 Suggested Changes in BTS (cont.) Timing of BTS is as follows; Questionnaires for the surveyed month (t) are sent in the last working day of the previous month (t-1) Participants are requested to return the completed forms by the 3rd day of the following month (t+1). A reminding is sent to the participants who do not sent their reply until the 3rd of the following month. Following the reminder, the fieldwork is ended within a week. Timing of EU Industry Survey is as follows; The monthly surveys are carried out in the first fortnight of each month. Results in the form of excel files are sent by to the European Commission before the end of the month. The quarterly surveys are carried out in the first fortnight of the first month of each quarter (January, April, July and October) and the results are sent to the Commission under the same format before the end of that month. 36

37 Monthly report of BTS is published at the web site of CBRT; 37

38 References Ece, D., Hamsici, T., Oral, E., (2005), Building up a real sector business confidence index for Turkey, Joint European Commission OECD Workshop on International Development of Business and Consumer Tendency Surveys, November 2005, Brussels. ( European Comission (2006), The Joint Harmonised EU Programme of Business and Consumer Surveys, User Guide Nilsson R. (1999), Business Tendency Surveys and Cyclical Analysis, Business Tendency Surveys, Proceedings of the First Joint OECD-ADB Workshop, Manila, November. OECD (2003), Business Tendency Surveys: A Handbook. Sutanto A. (1999), Business Confidence Index, Consumer Confidence Index and Index of Leading Indicators: An Experiment for Indonesia, Business Tendency Surveys, Proceedings of the First Joint OECD-ADB Workshop, Manila, November. 38