The Potential of Sentiment Indicators and Business Surveys in Tracing Crisis Economic Development.

Russian Lessons

Sergey TSUKHLO

Head, Business Surveys DepartmentGaidar Institute for the Economic

Policy (IEP), Russia

Plan of presentation

1. The Advantages of BTS in the Gaidar Institute

2. The IEP Sentiment Indicator – one month faster than industrial statistic

3. The New Indicators in BTS

4. Conclusions and Recommendations

1. The Advantages of BTS in the Gaidar Institute

• IEP is nongovernmental organisation.• The firms completely free to take part or

not to take part in our surveys.• We have to establish direct, informal and

effective relations with Russian directors.• As a result we have unique opportunities

to discuss with them some delicate topics.

• As a result we developed the most informative set of BTS indicators on Russian industry.

Monthly Statistics – Not for Crises• IEP usually disseminates BTS results in the

last days of reported month.• But two years ago (in September and October

2008) we were asked about the situation in Russian industry each days.

• It was obviously that experts, officials and mass-media did not know what was happened in Russian industry in fact.

• First I recommended to wait for our usual monthly report at the end of the month.

• But our consumers were not satisfied and insisted on immediate comments.

2. The IEP Sentiment Indicator• And we decided to publish the first report in

the middle of the reported month in the form of Sentiment Indicator.

• It was very short report based only on the part (50%) of usual number of replies.

• The formula of our Indicator is closed to European Industrial Confidence Indicator. But it was not the main thing.

• The main idea was the publication of the first and fast estimation of actual development (not forecast) in the middle of the month.

The first issue of the Indicator was disseminated on 22nd of October 2008. It demonstrated the close decline in Russian industry. Some economists did not believe it.

We updated our Indicator weekly and satisfied the needs of our consumers. -45

-30

-15

0

15

30

1/1995 1/1997 1/1999 1/2001 1/2003 1/2005 1/2007 1/2009 1/2011

IEP INDUSTRIAL OPTIMISM INDICATOR, 1995-2008

03/07

09/9803/96

07/99

03/02

10/08

08/08

In the middle of November 2008 we estimate the first value for this month and saw the decline in Russian industry.

The Russian officials and state statistic recognized it one month later. -45

-30

-15

0

15

30

1/1995 1/1997 1/1999 1/2001 1/2003 1/2005 1/2007 1/2009 1/2011

IEP INDUSTRIAL OPTIMISM INDICATOR, 1995-2008

03/07

09/9803/96

07/99

03/02

10/08

08/08

11/08

The last estimation of IEP Indicator (October 2010) shows the obvious recovery in the Russian industry.

The fast IEP Sentiment Indicator was successfully tested by Russian crisis.

-45

-30

-15

0

15

30

1/1995 1/1997 1/1999 1/2001 1/2003 1/2005 1/2007 1/2009 1/2011

IEP INDUSTRIAL OPTIMISM INDICATOR, 1995-2010гг.

03/07

12/0809/9803/96

07/99

03/02

10/08

08/08

3. The New Indicators in BTS• Business Surveys are not only the fastest source

of economic information. They are the source of new and interesting data on economic development in hard times.

• The European Harmonised Program already includes some indicators not available from traditional statistic (assessments and expectations).

• But the Crisis gave us a good chance for further development of BTS indicators and BTS organisation.

Two ideas were tested by the Crisis in Gaidar Institute:

1. New indicators could be easily introduced in BTS for crisis monitoring. They could be included on regular basis (monthly, bimonthly) or ad hoc. And completely new results would be available very fast. Such step doesn't cost anything (at least in IEP).

2. Some traditional QUARTERLY surveys indicators could be transformed into MONTHLY indicators for crisis period. After that they come back into quarterly block. And again this step doesn't cost anything.

What are the minimal crediting rate OFFEREDby banks to Russian manufacturing firms?

This new question was included in monthly BTS as a reaction to credit collapse in Russia in 2009 and to not-reasonable bank statistic on crediting. Now this indictor is popular very much.

THE AVERAGE MINIMAL CREDITING RATES SUGGESTED BY BANKS TO RUSSIAN

MANUFACTURING FIRMS, %

11

12

13

14

15

16

17

18

19

9/09 11/09 1/10 3/10 5/10 7/10 9/10

FIRMS WITH LOWACCESSIBILITY TO CREDITS

ALL FIRMS

FIRMS WITH NORMALACCESSIBILITY TO CREDITS

How do you estimate the credits accessibility for your firms? (above – normal – below)

The question on credits accessibility was included in quarterly BTS in 2000, but till the end of 2008 it was not interesting. Now it is monthly and essential indicator.

0

20

40

60

80

1/00 1/01 1/02 1/03 1/04 1/05 1/06 1/07 1/08 1/09 1/10 1/11

SHARE OF FIRMS WITH NORMAL ACCESSIBILITY TO CREDITS

%

17%, 12/08

80%, 08/07

The traditional quarterly questions on employment trend were transformed into monthly since the start of crisis.

And now these monthly indicators show the dramatic changes in firms labor policy.

-60

-45

-30

-15

0

15

30

1/05 7/05 1/06 7/06 1/07 7/07 1/08 7/08 1/09 7/09 1/10 7/10 1/11

%

EMPLOYMENT TRENDS(BALANCE = UP - DOWN)

EXPECTED

REPORTED

01/09

4. Conclusions and Recommendations

1. The direct and informal relations with firms directors provide the most informative set of BTS indicators.

2. Monthly statistics – not for crises.3. The first estimation of Sentiment Indicators could

be published in the middle of the reported month.4. New indicators could be easily introduced in BTS

for crisis monitoring.5. Some quarterly surveys indicators could be

transformed into monthly indicators for crisis period.6. UN and OECD could create a list of NEW crisis

BTS indicators.