Economic Letter: A monthly indicator of economic activity for Ireland

An Economic Letter by Thomas Conefrey and Graeme Walsh sets out a new indicator of economic activity for Ireland. The Business Cycle Indicator (BCI) helps to address two key difficulties faced by analysts in assessing current economic conditions – the fact that standard aggregates such as GDP no longer provide a meaningful measure of developments in the Irish economy and that key National Accounts data are only available with a lag.

The key findings are:

• The analysis describes how a single summary indicator of underlying economic activity* can be constructed from a large dataset of high-frequency releases such as monthly retail sales and Exchequer returns.
• The BCI can be used to monitor the performance of the economy. The latest estimate of the BCI suggests that economic activity continues to grow at a robust pace, underpinned by improvements in the labour market. The BCI is found to be a good predictor of trends in domestic activity: for 2018 it is consistent with growth in underlying domestic demand of around 5¾ %.
• The BCI will be updated regularly and used as part of the Central Bank’s forecasting framework to inform assessments of the current state of the economy.

The views presented in Economic Letters are those of the authors and do not necessarily represent the official views of the Central Bank of Ireland.

*Underlying economic activity refers to activity carried out in Ireland that affects the employment and incomes of Irish residents. It excludes investment in intangible assets and aircraft from headline domestic demand.

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