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The Trader's Guide to the Euro Area: Economic Indicators, the ECB and the Euro Crisis by David J. Powell

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Chapter 4

Leading Indicators

Financial Conditions Index

The Bloomberg Euro-Area Financial Conditions Index has become a leading indicator of GDP growth in the monetary union (Figure 4.1). It has a lead time of two quarters. The quarterly correlation between the index – with a two-quarter lead – and year-over-year GDP growth from the first quarter of 1999 to the fourth quarter of 2010 stands at 0.86. The index is continuously updated on an intraday basis and is available on the Bloomberg Professional Service. Using a five-day moving average provides a reading of the short-term trend.

FIGURE 4.1 Bloomberg euro-area financial conditions index and GDP growth.

Source: Bloomberg

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