Chart of the Day: a simple sketch of European economic vigour

RBS explains its methodology:

The chart shows the combination of country GDP growth rates implied by our survey dataset and its momentum. The growth (X) axis is expressed in % on a y/y basis, while the momentum (Y) axis is the change in the growth rate expressed in percentage points. Countries to the left side of the chart are exhibiting negative growth rates and countries to the right side positive growth rates, while countries in the upper part of the chart are experiencing positive momentum and countries in the bottom part negative momentum. The chart refers to the current position of the implied absolute GDP growth rate in the cycle and does not provide an assessment of its current position compared to its long term average growth rate (eg, on this chart a country can be exhibiting positive growth and be in an expansion phase, but still be underperforming relative to its historical average growth rate). In the Table above, Momentum: Strong negative - larger than 2 SD; Negative - in between -0 and -2 SD; Strong positive - larger than 2 SD; Positive - in between +0 and +2 SD.

All data are sourced from the European Commission monthly confidence survey. We transform the survey data into growth and momentum proxies. To avoid large short term fluctuations caused by the volatility of the underlying indicators, three month moving averages of the underlying data are used to construct all graphs. At time of publication the data usually refers to activity during the last calendar month.

Growth is represented on the X axis. Growth is positive if it is on the right side of the chart (blue shaded area) or negative if it is on the left side of the chart (red shaded area). The further out from the centre, the stronger the expansion or contraction.

Momentum measures the change in the growth rate. It is represented on the Y axis. The larger the momentum the faster the business cycle is evolving.

Each quadrant represents a business cycle phase, the same as those identified in the first chart. The “Expansion” quadrant is defined as positive growth and momentum; the “Slowdown” quadrant is defined as positive growth and negative momentum; the “Recession” quadrant is a combination of negative growth and negative momentum while the “Recovery” quadrant combines negative growth and positive momentum.