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Analysis

Strong rise in leading OECD indicator indices for euro area countries - except Germany

by Gabriel Stein

Mon 16 Sep 2013

OECD leading indicators for euro area countries are rising strongly – except for Germany Enlarge Chart loading Image

What the chart shows: The chart shows the leading OECD indicator indices for the euro area and its largest economies.

Why the chart is important: The OECD leading indicator indices are designed to forecast trend changes in economic activity on a six to nine month horizon. In essence, if a leading indicator is rising, it points to above-trend growth; if it is falling it points to below-trend growth and if it is moving sideways it points to trend growth.

The slope of the rise or fall is less important, but still has some relevance. It is also important not to be fixated on the very latest month’s movements; typically, an indicator has to move in a new direction for three months before it is time to call a change in trend.

For the largest euro area members, the leading indicator indices have been rising since the end of last year, with one exception. The German leading indicator index only began to turn up in February this year. The indicators thus imply above-trend growth in the euro area from the first half of 2013 onwards.

But there are two concerns: one is that the Italian leading indicator index turned down in July (although this is only one month’s move and so as yet less important); the second is the relative weakness of the German leading indicator index.

Both factors raise a question mark over the continued strength of the euro area recovery.

Chart and comments provided by Stein Brothers (UK) www.steinbrothers.co.uk