The Industrial Cycle of Milan as an Accurate Leading Indicator for the Italian Business Cycle

A coincident business cycle indicator for the Milan area is built on the basis of a monthly industrial survey carried out by Assolombarda, the largest territorial entrepreneurial association in Italy. The indicator is extracted from three time series concerning the production level and the domestic and foreign order book as declared by some 250 Assolombarda associates. This indicator is potentially very valuable in itself, being the Milan area one of the most dynamic economic systems in Italy and Europe, but it becomes much more interesting when compared to the Italian business cycle as extracted from the Italian industrial production index. Indeed, notwithstanding the deep differences in the nature of the data, the indicator for Milan has an extremely high coherence with the Italian cycle and the former leads the latter by approximately 4-6 months. Furthermore there is a direct relation between the amplitude of the cycle and the leading time of the Milan indicator. The ability of the Milan indicator to predict in real time the turning points of the Italian business cycle is tested through a simple forecasting exercise.