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The crisis,
from Wall Street to Main Street
Francesco Daveri
1
Plenty of business cycle fluctuations
in the world economy
6
Growth world Gdp, %
5
4
3
2
1
0
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014p
2015p
-1
The year-to-year variation in Gdp growth is substantial. The 1978-2014
growth rate of world Gdp averaged 3.4 ppts (dotted line), with a standard
deviation of 1.4 ppts
Macroeconomic definition of Business Cycles
Actual GDP data mix up two parts, potential and transient
 GDPn = potential Gdp or output (dotted line, goes up over time
thanks to innovation and technical change)
 Transient part (excess/shortfall of actual Gdp with respect to
Gdpn) is the business cycle component of Gdp
Peak, “tetto”
Gdpn
Gdp
Expansion
From trough to
next peak
Recession
From peak to
next trough
Trough, “pavimento”
t
Statistical definition of a “recession”
Business cycle: alternating expansions and recessions. What is a
“recession”?
Often cited definition: GDP growth <0 over two consecutive
quarters.
 Not very useful;
 Sequence of quarterly GDP growth of -2%, +0.01%, -2%,
+0.01 would not be a recession, although the yearly number
would be sharply negative
Common practice: Business cycle dating committees look at broad
set of variables (GDP but also industrial production and turnover,
total employment, retail sales) with varying time frequency.
Gdp = C +I+G+ Exp – Imp: what the yearly data show
1) C often fluctuates less than Gdp
(not in 2012)
2) Gdp more stable than I, Exp e Imp
3) G is “countercyclical” item
430
410
428
416
414
423
1.480
403
390
380
370
416
405
398
410
1.492
1.475
1.380
371
1.417
1.424
1.394
1.390
1.365
363
355
350
1.280
342
330
1.180
316
310
290
Growth rates Gdp c
i
g x
m
Mean 2008-13 -1,4 -1,3 -5,0 -0,7 0,0 -2,2
Std. deviation 2,5 2,0 4,5 1,3 9,9 8,8
304
299
304
301
299
270
270
1.080
302
290
287
980
266
269
250
880
245
232
230
2007 2008 2009
Investment
Export
Source: ISTAT
2010 2011 2012 2013
Govt consumption
Import
863
843
856
856
856
820
780
2007
2008
2009
gdp
2010
2011
2012
799
2013
Consumption
Data unit: Billions of €, constant (chained) prices
5
Questions on Gdp and consumption
Question: Why does Gdp (often) fluctuate more than C?
Answer
1) C is a function of disposable income (Gdp – taxes + transfers),
not of Gdp as such. Disposable income has more stable trend than
Gdp, hence C is also more stable
2) C is also a function of wealth. Wealth fluctuates less than Gdp.
Question: Why has C fallen more than Gdp in Italy in 2012-13?
Answer
1) In 2012-13 maxi increase in taxes (Imu, excise taxation)
2) Also: fall in housing market made people feel poorer than in the
past
The tax revenue hike in 2012 (and projections)
Nota di aggiornamento al
Documento di Economia e
Finanza (DEF), ottobre 2014
Real Gdp growth
Gdp at current prices (bn €)
Deficit / Gdp (“quadro
tendenziale”)
Deficit / Gdp (“quadro
programmatico”)
2011 2012
+0,4
-2,4
2013
2014
2015
-1,7
-0,3
+0,5
1638,9 1628,0 1618,9 1626,5 1642,8
3,8
3,0
2,8
3,0
2,2
3,8
3,0
2,8
3,0
2,9
120,8
127,0
127,9
131,6
133,4
Tax revenue / Gdp (“a
legislazione vigente”)
Govt spending / Gdp (net of
interests on public debt)
46,6
48,1
48,3
48,3
48,5
45,6
45,6
46,3
46,6
46,2
Total Govt spending / Gdp
50,4
51,1
51,1
51,3
50,7
Public debt /Gdp (“quadro
programmatico”)
Percentage change compared to
corresponding period of the previous year
Quarterly data give more details
12,0
7,0
Gdp
2,0
Imp
C
-3,0
I
-8,0
G
Exp
-13,0
-18,0
-23,0
Qualitative picture is the same as for yearly data:
• C less volatile than Gdp (but for 2012);
• Exports, Imports, I more volatile than Gdp;
• G is countercyclical.
Source: Eurostat
Problem: data comparability across quarters
Question: How do we compare q1 2013 with q4 2012?
Q4 2012 did have Christmas, q1 2013 doesn’t.
Sales (and Gdp) shoot up in q4 every year, then down in January.
August sales and production drop and then they automatically
recover in September. Yet economy may still be depressed in
September.
How do we measure this?
Answer: data must be “de-seasonalised” to be made comparable
across quarters.
Link to the Istat website
De-seasonalised QoQ data on Gdp indicate end of recession for
the EZ17 (Eurozone) and the US between q2 and q3 2009
Quarterly Gdp
data
Ita
Euro
Usa
Ger
Fra
UK
Spa
Q1 08 vs Q4 07
+0.5
+0.8
-0.2
+1.6
+0.5
+2.4
+0.4
Q2 08 vs Q1 08
-0.6
-0.3
+0.4
-0.6
-0.4
-0.3
+0.0
Q3 08 vs Q2 08
-0.8
-0.4
-0.7
-0.3
-0.3
-0.7
-0.6
Q4 08 vs Q3 08
-2.1
-1.8
-1.4
-2.4
-1.4
-1.7
-1.1
Q1 09 vs Q4 08
-2.7
-2.5
-1.6
-3.5
-1.4
-2.4
-1.6
Q2 09 vs Q1 09
-0.5
-0.2
-0.3
+0.3
+0.3
-0.6
-1.1
Q3 09 vs Q2 09
+0.4
+0.4
+0.4
+0.7
+0.3
-0.3
-0.3
Q4 09 vs Q3 09
-0.1
+0.1
+1.2
+0.3
+0.6
+0.4
-0.1
Q1 10 vs Q4 09
+0.4
+0.2
+0.9
+0.5
+0.2
+0.3
+0.1
Gdp loss during
2008-09
recession
-6.5
-5.1
-3.8
-6.4
-3.2
-5.6
-4.6
10
The takeaway from previous table on the 2008-09 recession
1. The 2008-09 recession started a couple of quarters before the
financial crisis has precipitated.
2. In the US and the euro area the Great Recession of 2008-09
has ended by mid 2009. In Germany and France starting from
2009 Q2. In Italy, the euro area and the US from 2009 Q3.
3. In the UK and Spain the recession lasted longer (UK, until
2009 Q4 and Spain until 2010 Q1)
4. Italy, Germany and the UK showed the highest cumulated
Gdp losses in 2008-09. France and the US showed the lowest
cumulated loss. Spain in between.
Reminder: If an economy exhibits a “+4%” in the wake of a “-4%”,
its GDP has not come back to where it was, but stays below the
previous level
11
2° half of 2009- 1° half of 2011: gradual recovery.
NOT for Germany & Usa, where recovery was fast
 Pil, quarterly Ita
Euro Usa Ger Fra UK
Spa
q209 vs q109
-0.5
-0.2
-0.3
+0.3
+0.3
-0.6
-1.1
q309 vs q209
+0.4
+0.4
+0.4
+0.7
+0.3
-0.3
-0.3
q409 vs q309
-0.1
+0.1
+1.2
+0.3
+0.6
+0.4
-0.1
q110 vs q409
+0.4
+0.2
+0.9
+0.5
+0.2
+0.3
+0.1
q210 vs q110
+0.4
+1.0
+0.6
+2.2
+0.6
+1.1
+0.2
q310 vs q210
+0.2
+0.4
+0.5
+0.7
+0.4
+0.8
+0.0
q410 vs q310
+0.1
+0.3
+0.8
+0.4
+0.3
-0.5
+0.2
q111 vs q410
+0.1
+0.8
+0.1
+1.3
+0.9
+0.5
+0.4
q211 vs q111
+0.3
+0.2
+0.2
+0.1
0.0
+0.2
+0.2
Gdp during
2009-11 recovery
+1.8
+3.4
+4.8
+6.7
+3.7 +2.8
+1.0
12
Where do growth differences leave us in terms of
real GDP levels?
Q1-2008
Q2-2008
Q3-2008
Q4-2008
Q1-2009
Q2-2009
Q3-2009
Q4-2009
Q1-2010
Q2-2010
Q3-2010
Q4-2010
Q1-2011
Q2-2011
Q3-2011
Q4-2011
Q1-2012
Q2-2012
Q3-2012
Q4-2012
Q1-2013
Q2-2013
Q3-2013
Q4-2013
Q1-2014
Q2-2014
104,0
102,0
100,0
98,0
96,0
94,0
92,0
90,0
Francia
Germania
Italia
Spagna
Compared to end 2007: Germany +3%, France about the same, Spain 5%, Italy -9%
Source: Eurostat
Gdp only at quarterly frequencies. Need other indices
to learn how the economy fares between Gdp releases
Monthly indicators of the business cycles are either coincident or forward or
backward with respect to Gdp.
 Total employment or unemployment
 Backward-looking indicator
 Depends on past Gdp
 Industrial production and turnover
 Coincident indicator
 Quarterly IP and turnover highly correlated with same-quarter Gdp growth
 Orders
 Forward looking variable
 Predicts what is going to happen to industrial production and turnover (and
Gdp)
 Retail sales
 Coincident.
14
Not all retail sales fell equally abruptly
Food sales resilient, durables and semi-durables fell…
... Mostly for durables and semidurables (clothing) less so for
non-durales & services
110.0
100.0
90.0
80.0
70.0
60.0
50.0
T1-1992
T2-1993
T3-1994
T4-1995
T1-1997
T2-1998
T3-1999
T4-2000
T1-2002
T2-2003
T3-2004
T4-2005
T1-2007
T2-2008
T3-2009
T4-2010
T1-2012
T2-2013
40.0
Fonte: Elaborazioni su Istat
Beni durevoli
Semi-durevoli
Non durevoli
Servizi
Crisis not equally there for everybody.
1) Small shops, dramatic fall
2) A «new normal» for Big Box retail formats (GDO)?
Fonte: elaborazione su dati Istat
Even within the GDO, quite a bit of action
Fonte: elaborazione su dati Istat
One indicator, not many
that’s what we go for …
This is the Oecd
CLI (Composite Leading Indicator)
superindex!
http://www.oecd.org/std/leadingindicators/
What’s in the Oecd super-index for Italy today?
The Oecd super-index is a summary of six sub-indices (for Italy):
Component Series (Unit)
Source
Institute for Studies and
Economic Analyses (ISAE)
•
Consumer confidence indicator (% balance)
•
Production: future tendency (manufacturing) (%
balance)
ISAE
•
Deflated net new orders (2005 = 100)
ISTAT
•
Order books level (manufacturing) (% balance)
ISAE
•
CPI All items (2005=10) inverted
ISTAT
•
Imports from Germany Cif (USD)
ISTAT
Source: Oecd
19
The Oecd super-index is a summary forward looking
indicator. In 2009 it has shown “signs of recovery” since
early 2009.
Press cut, Sep 12, 2009
“OECD composite leading indicators (CLIs) for July 2009
show stronger signs of recovery in most of the OECD
economies. Clear signals of recovery are now visible in all
major seven economies, in particular in France and Italy,
as well as in China, India and Russia”
The minimum of the super-index for Italy in 2009 was
reached around the beginning of 2009.
20
What the CLIs used to say for Italy early on in 2009?
21
What the super-index shows today?
In 2013 the Oecd super-index showed signs of recovery everywhere,
with an acceleration in the EZ, Germany, Italy and consolidation
(“growth firming”) in the US. Instead, EZ struggling not to fall in
recession for the 3rd time
Release: Oecd, October 2014
Another summary indicator: PMI Markit
•
•
•
Purchasing Managers' Index™ (PMI™) series
compiled by Markit are key benchmark indicators for
measuring the business and economic conditions in any
given economy.
In particular:
 Eurozone Complete PMI data collected from
5,000 manufacturing and services firms;
 Eurozone Services PMI data collected from a
2,000 private service sector firms.
There are two parts to the monthly PMI releases;
 the first is the headline PMI number, designed to
provide a snapshot of the health of the economy;
 the second is the sub-indices, or component level
data. These sub-indices provide insight into key
economic drivers such as inflation, exports,
employment and inventories
23
PMI Markit: benefits and functions
•
Benefits:



•
Reliable guide to future official economic data releases such as
GDP;
Data are produced very rapidly, and far faster than equivalent
official data, often providing the first indication of economic
trends each month;
Represent the most comprehensive global economic survey
available to professional investors (more than 20.000
companies are in the panel).
Functions:



Provide a snapshot of the health of the economy;
Data are comprehensive and cover private sector economic
activity in all of the world’s (major developed and emerging
economies);
Data are produced using the same methodology, including all
main developed economies and key emerging markets, offering
uniquely accurate international comparisons.
24
Example of PMI Markit
•
Flash Eurozone Composite Output Index: 52.7 (January 2014 was
52.9)
•
Flash Eurozone Services Business Activity Index: 51.7 (January
2014 was 51.6)
Release: February 2014
25
PMI Markit for Core vs Periphery EZ countries
The periphery (and France) lag behind Germany both in
output and employment
Release: February 2014
26
Measuring the labor market
implications of the crisis
Two keywords:
• Output gap
• Okun’s law
Definition: the “output gap”
Output gap - a synthetic measure of fluctuations
= (GDP-GDPpotential) / GDPpotential
 If output gap positive, economy overheated & inflation mounting;
 if output gap negative, economy working at less than full capacity &
inflation cooling down.
Yet formula above not very useful: who knows the value of Gdp or
GDPpotential in $ or €?
See useful substitute in the next slide.
Computing the output gap on the flip side of
your business card
Euro area
2010
2011
2012
2013
Actual
GDP
growth
1.9
1.4
-0.6
-0.4
Potential
GDP
growth
1.0
0.9
0.8
0.8
-3.0
-2.5
-3.9
-5.1
Output
gap
2009
-3.9
Previous formula: Output gap = (GDP-GDPn) / GDPn may be replaced with
something simpler and measurable:
Output gapt  output gapt-1+ (actual growtht – potential growtht),
where “actual Gdp growth” is a known number and “potential growth” = avg.
growth of recent years
Source: Oecd Statistics website
Definition: Okun’s law
Over the cycle: GDP and unemployment co-vary negatively. Need rule of
thumb to translate U rate above or below its natural rate in terms of output
gap. Okun’s law is such rule of thumb.
Okun’s law: Any extra % point of actual unemployment corresponds to
2% points of output gap (Okun’s coefficient = (negative) 0.5).
An empirical regularity. With exceptions (see next slides)
Rationale for Okun’s law? Why does GDP fluctuate more than U?
 As GDP falls, labor hoarding; as GDP rises, overtime
 In both cases, changes in U lag behind changes in GDP
 For about six to nine months if employment very protected, less so in the
US
Okun’s law in excess of 1 in the US economy in 2006-2009 …
Source: International Monetary Fund, World Economic Outlook, 2010
4,5
Jan-08
feb-08
mar-08
apr-08
May-08
Jun-08
Jul-08
Aug-08
Sept-08
Oct-08
nov-08
Dec-08
Jan-09
feb-09
mar-09
apr-09
May-09
Jun-09
Jul-09
Aug-09
Sept-09
Oct-09
nov-09
Dec-09
Jan-10
feb-10
mar-10
apr-10
May-10
Jun-10
Jul-10
Aug-10
Sept-10
Oct-10
nov-10
Dec-10
Jan-11
feb-11
mar-11
apr-11
May-11
Jun-11
Jul-11
Aug-11
Sept-11
Oct-11
nov-11
Dec-11
Jan-12
feb-12
mar-12
apr-12
May-12
Jun-12
Jul-12
Aug-12
Sept-12
Oct-12
nov-12
Dec-12
Jan-13
feb-13
mar-13
apr-13
may-13
jun-13
jul-13
aug-13
sep-13
oct-13
nov-13
dec-13
... And closer to zero for Germany …
Germany's Gdp
102,0
100,0
98,0
96,0
94,0
92,0
90,0
Germany
Unemployment rate in Germany
8,5
7,5
6,5
5,5
Source: Eurostat
6
Jan-08
feb-08
mar-08
apr-08
May-08
Jun-08
Jul-08
Aug-08
Sept-08
Oct-08
nov-08
Dec-08
Jan-09
feb-09
mar-09
apr-09
May-09
Jun-09
Jul-09
Aug-09
Sept-09
Oct-09
nov-09
Dec-09
Jan-10
feb-10
mar-10
apr-10
May-10
Jun-10
Jul-10
Aug-10
Sept-10
Oct-10
nov-10
Dec-10
Jan-11
feb-11
mar-11
apr-11
May-11
Jun-11
Jul-11
Aug-11
Sept-11
Oct-11
nov-11
Dec-11
Jan-12
feb-12
mar-12
apr-12
May-12
Jun-12
Jul-12
Aug-12
Sept-12
Oct-12
nov-12
Dec-12
Jan-13
feb-13
mar-13
apr-13
may-13
jun-13
jul-13
aug-13
sep-13
oct-13
nov-13
dec-13
.. And Italy still in 2008-09. Then in the years closer to
us, Okun’s law back in business
Italy's Gdp
102,0
100,0
98,0
96,0
94,0
92,0
90,0
Italy
13
12
11
10
9
8
7
Italia
Source: Eurostat
Come erano
le previsioni 2014-15
nei primi mesi del 2014
Le slide dal corso 2013-14 …
Nel 2014-15 tornerà (dovrebbe) il segno più …
+pil, +consumi, +export, +import. Pil a prezzi correnti su
del 2 per cento. Ma effetto zero su disoccupazione.
Consumi 2014
(variazione %, volumi)
Governo
+0,5
Nota di
(previsione
Aggiornamento al
Pil: +1,0)
DEF, settembre 2013
Istat
Previsioni per
l’economia italiana,
ottobre 2013
Commissione
Europea
Autumn Economic
Forecasts,
novembre 2013
+0,2
(previsione
Pil: +0,5)
+0,3
(previsione
Pil: +0,7)
35
Il segno più del 2014 viene dalla ripresa (oscillante) degli
ordini industriali …
Ordinativi totali
dell’industria, 2010=100
102,0
100,0
98,0
96,0
94,0
92,0
set-11
ott-11
nov-11
dic-11
gen-12
feb-12
mar-12
apr-12
mag-12
giu-12
lug-12
ago-12
set-12
ott-12
nov-12
dic-12
gen-13
feb-13
mar-13
apr-13
mag-13
giu-13
lug-13
ago-13
set-13
ott-13
nov-13
dic-13
gen-14
90,0
Elaborazione su dati Istat
GENNAIO-DICEMBRE 2013: -1,5% SUFonte:
GEN-DIC
2012, IN MIGLIORAMENTO RISPETTO AL 1O
SEMESTRE 2013 RISPETTO A 1°SEMESTRE
2012 (ERA -3,2%)
36
La ripresa 2014 è poi trainata dal recupero della fiducia di
imprese e famiglie nel 2013 (la ripresa della fiducia delle
famiglie si è però incrinata negli ultimi mesi dell’anno)
Fiducia imprese
Fiducia famiglie
Fonte: Istat
dic-13
lug-13
feb-13
set-13
mag-13
gen-13
set-12
mag-12
gen-12
set-11
mag-11
gen-11
75
set-12
80
apr-12
85
nov-11
90
giu-11
95
105,0
103,0
101,0
99,0
97,0
95,0
93,0
91,0
89,0
87,0
85,0
gen-11
100
37
… E da ordini e fiducia si va ai fatturati, con una
marcata differenza tra interni ed esteri …
Fatturato, industria
(dati
destagionalizzati)
Aprile 2008
Totale
Nazionale
Estero
100.0
100.0
100.0
Aprile 2009
76.8
77.9
74.1
Aprile 2011
93.2
91.6
96.7
Aprile 2013
83.1
76.8
99.3
Gennaio 2014
86.0
79.1
103.9
Fonte: elaborazione su dati Istat
IL FATTURATO ESTERO DELL’INDUSTRIA GIÀ NELL’APRILE 2013
ERA RITORNATO AI LIVELLI PRE-CRISI
IL FATTURATO INTERNO È MOLTO SOTTO, MA È IN LIEVE RIPRESA
38
Secondo la Confindustria c’era anche uno «scenario B»
più pessimistico.
Lo scenario B si è rivelato più ottimistico di quello che
è accaduto, soprattutto per il peggioramento della
congiuntura internazionale (Ucraina)
39
Il peggioramento della fiducia dei consumatori, un
problema comune a tutti i governi italiani
Fonte: Elaborazione su dati Istat
40