Conceptualizing economic leading indicators for early warning of Thailand's business cycle turning points

The research utilized official statistical data for economic early warning. Several data were narrowed down to eight potential leading indicators regarding their cycle relationship to Thailand's business cycle from 1993Q1 to 2022Q4. Instead of using Principal Component Analysis (PCA) for indicator selection, this study derived underlying dimensions of selected leading indicators in broader concepts than monitoring individuals, enhancing the understanding and interpretation. Those eight indicators were classified and constructed into the three Composite Leading Indexes (CLIs); additionally, all were aggregated to be a single CLI as a benchmark. In evaluating CLIs’ real-time forecasting, the results showed that using the three component-specific CLIs complementarily provides better performance than including all of them in a single CLI or relying solely on the first component from PCA. As for the benefit of policy implementation, since peaks can probably cause more severe economic damage than troughs, policymakers should prioritize CLI representing “Economic Activity Driver” to mitigate damage from economic peaks, as it tracks production and business sentiment. The second, capturing “Economic Investment Trend,” monitors investment dynamics, while the third, providing “Economic Price Pressure,” reflects inflation and declining wealth. Monitoring these three CLI provides insights into economic growth and policy interventions.