Economic Confidence Index is a very important tool to evaluate the economic situation of a country. This index is a composite index that reflects the perceptions, expectations and tendencies of consumers and producers towards the general economic situation.
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Producers’ confidence in the economy and their production plans are also part of the economic confidence index. The business confidence index includes data on future investment and employment plans of businesses. This index reflects the economic growth and development expectations of businesses and is usually measured through production indices and business surveys.
Consumers’ confidence in the economy and their spending propensity are often measured by the consumer confidence index. Consumer confidence is an indicator that reflects consumers’ assessments of their future economic situation. For example, consumers’ employment and income prospects are measured through the consumer confidence index and are considered an indicator of economic confidence.
The economic confidence index also includes macroeconomic factors such as the unemployment rate and inflation.
How to Calculate Economic Confidence Index?
Every month, the Economic Confidence Index is calculated by the Turkish Statistical Institute (TUIK) to measure the general economic situation, expectations and trends of consumers and producers. Calculating the Economic Confidence Index requires a very detailed process. This index is created by combining various economic indicators.
This index is calculated as the weighted average of sub-indices belonging to five main sectors.
The five basic sectors and their weights are as follows:
- Consumer: 20%
- Real Sector (Manufacturing Industry): 40%
- Service: 30%
- Retail Trade: 5%
- Construction: 5%
Sub-indices and related expectations are:
Consumer Confidence Index
- Change in the financial situation of the household in the next 12 months
- Change in the general economic situation in the next 12 months
- Change in the unemployment rate in the country in the next 12 months
- Change in the possibility of saving in the next 12 months
Real Sector (Manufacturing Industry) Confidence Index:
- Change in production volume in the next 3 months
- Change in the number of people employed in the business in the next 3 months
- Change in stock level in the next 3 months
Service Sector Confidence Index:
- Change in service sector activities in the next 3 months
- Change in the number of people employed in the service sector in the next 3 months
Retail Trade Sector Confidence Index:
- Change in retail trade sales in the next 3 months
- Change in stock level in the next 3 months
Construction Sector Confidence Index:
- Change in new construction orders in the next 3 months
- Change in construction activities in the next 3 months
Economic Confidence Index Calculation Stages
- Sub-indices for each sector are collected through surveys conducted by TURKSTAT.
- The seasonality effect of sub-indices is adjusted.
- Weights are determined for the sub-indices in each sector’s index.
- Weighted sub-indices are summed and their averages are taken.
- The Economic Confidence Index is obtained by multiplying the average by 100.
Let’s say the sub-indices and weights of each sector are as follows:
| Sector | Sub-Index | Weight |
| Consumer | 105 | 0.2 |
| Real Cut | 110 | 0.4 |
| Service | one hundred | 0.3 |
| Retail Trade | 95 | 0.05 |
| Building | 90 | 0.05 |
Consumer confidence is an important indicator that reflects consumers’ perceptions and expectations of the economic situation. This confidence involves consumers’ assessments of their future economic situation and is often measured through surveys. In surveys, consumers are asked questions about what their economic situation will be like in the coming months, and this data is collected and used to calculate the index.
Business Trust
Business confidence is an indicator that reflects the economic expectations and trends of businesses. Factors such as future investment and employment plans of businesses and economic growth rate are taken into account in calculating the index. Business confidence is often measured with information from sources such as business surveys and industrial production data.
Unemployment rate
The unemployment rate is also an important component of the Economic Confidence Index. The unemployment rate is an indicator that reflects the level of unemployment in an economy. It is often measured by data such as official labor force statistics and unemployment insurance claims. High unemployment rates may indicate that economic confidence is low and may affect consumers’ spending tendencies.
Inflation rate
The inflation rate is also an important factor in calculating the Economic Confidence Index. Inflation refers to the general tendency for prices to increase in an economy and affects the purchasing power of consumers. The inflation rate is often measured by indicators such as the consumer price index (CPI) and is taken into account in calculating the index.
How to Interpret the Confidence Index?
Interpreting the Economic Confidence Index provides important information about a country’s economic situation and future. This index reflects the level of confidence of consumers and businesses in the economy and is therefore of critical importance.
An Economic Confidence Index above 100 generally indicates an optimistic outlook. This indicates that consumers and businesses have positive expectations about future economic conditions. Optimism can contribute to increased consumption and investments and strengthen businesses’ growth and expansion strategies.
An Economic Confidence Index below 100 generally reflects a pessimistic outlook. This indicates that consumers and businesses are concerned about future economic conditions. Pessimism can lead to a decrease in consumption and investments, lower profit expectations for businesses, and a slowdown in economic activity due to uncertainties.
The trend of the Economic Confidence Index is also very important. An increasing trend may indicate that the economy is strengthening and economic activity is tending to increase. This may signal that it is the right time for policymakers to take economic stimulus measures.
On the other hand, a declining trend may indicate that the economy is weakening and economic activity is slowing. In this case, policymakers can often take stimulus measures to stimulate the economy.
The Importance of the Economic Confidence Index
The Economic Confidence Index is an important tool for economists, policymakers and businesses. This index provides information about the overall health of the economy and helps predict future economic trends. It also plays an important role in identifying potential risks that may affect economic activity by measuring consumers’ and businesses’ confidence in the economy.
Monitoring the Economic Confidence Index is also important in creating and implementing economic policies. For example, if the index is low, policymakers can take various measures to stimulate the economy. Likewise, if the index is high, tightening policies can be implemented to reduce the risk of overheating.
As a result, the Economic Confidence Index is an important tool for assessing a country’s economic situation and predicting future trends. Regular monitoring of this index enables economic decisions to be made more consciously and helps maintain economic stability.
