DNBulletin
| Datum | 26 februari 2019 |
|---|---|
| Theme | Economy |
DNB’s recently revised business cycle indicator shows that the Dutch economy turned at the start of 2018. For the next six months, the indicator points to a further flattening of gross domestic product (GDP) growth, in line with DNB's December 2018 projections. In the second quarter of this year, the indicator is just below the horizontal axis, which suggests that GDP growth will be just below trend-based growth.
The revised Dutch business cycle indicator can be found on our website as of today (see Figure 1). We have been publishing the Dutch business cycle indicator on our website since 1999, and we recalibrate and update it on a regular basis. A recent article in Economische Statistische Berichten (ESB) (available in Dutch) explains the revised business cycle indicator and its predictive power in more detail.
Figure 1: DNB's revised business cycle indicator
The Dutch business cycle indicator is designed for early detection of turning points in the Dutch business cycle. The leading indicator looks up to six months ahead and comprises the following five components: consumer confidence with regard to the economic situation in the next 12 months, expected economic activity in Germany, the manufacturing sector's order book, the manufacturing sector's purchased materials and short-term interest rates. The new leading indicator, incorporating the most recent data on these components from January 2019, predicts the economic conditions through July 2019.
If the indicator is above the horizontal axis, i.e. in the green area of Figure 2, this signals above-trend economic growth. In this stage, the indicator suggests that the output gap – a measure of the difference between actual GDP and potential growth – is widening. Conversely, if the indicator is in the red area below the horizontal axis, this signals below-trend economic growth. The turning points are at the peaks and troughs of the chart. The indicator shows the following four stages of the business cycle: above-trend growth, expansion (A); above-trend growth, contraction (B); below-trend growth, contraction (C); and below-trend growth, expansion (D).
Figure 2: Stylised business cycle
The Dutch business cycle indicator projects further flattening of GDP growth (y-o-y) in the next six months of this year. In the second quarter, the leading indicator is below the horizontal axis, which suggests that GDP growth will slump to just below trend-based growth (stage C in Figure 2). The projected downturn is roughly in line with DNB's December 2018 forecasts for the Dutch economy.