Analysis of the Relationship Between the Economic Sentiment Indicator and GDP Growth

Abstract

The article analyzes the relationship between aggregate economic sentiment and GDP growth in Russia in the context of the regular large-scale surveys of business and households for the period of 1998–2020. The aim of the study is to prove the empirical value of the opinions of economic agents in expanding macroeconomic information, especially in a time of sudden crisis events, as well as the feasibility of their use in short-term statistics of business cycles. The cyclical sensitivity of aggregate economic sentiment relative to the reference GDP growth dynamics is tested. The authors calculate a composite economic sentiment indicator (ESI) that combines quarterly information on 18 survey-based indicators. The sample used to construct the ESI covers about 24,000 organizations in main economic activities and 5,100 consumers in all Russian regions. Common empirical patterns and cyclical movement are identified using the iterative procedure of visual and statistical analysis of the relationship between the GDP physical volume index and ESI. The results of cross-correlation analysis, Hodrick—Prescott filtering, and dating of cyclical dynamics are described. The significance of the composite survey-based indicator in the sectoral and cross-country analysis of entrepreneurial behavior, including that during the COVID-19-related crisis, is confirmed. The results of the study allow one to record the “cognitive shift” in the level of aggregated entrepreneurial confidence having formed in recent years. After the decline in ESI values during the protracted recession in 2015–2016, its subsequent four-year dynamics are characterized by the lowest potential compared with the recovery periods after all previous crises.