What is the Business Confidence Index (BCI)?
Business Confidence Index (BCI) is a leading indicator of future developments in the country. This index is built with the opinions taken during regular surveys asking about progress in production, sales, orders, and stocks of finished goods in the manufacturing sector. It can be employed to monitor the growth in production and try to forecast future turns in the economic situation.
Speaking about numbers, above 100 suggests increased confidence in business performance and numbers below 100 indicate nervousness towards future performance. Basically, Business or economic sentiment shows the optimism that business managers have on the prospects of economic conditions in a country or region. It also presents an overview of how people foresee the economy.
It is a component of the bank’s business survey, which covers hundreds of companies to assess the business conditions in the country. The index is a leading indicator in gauging the overall health of the economy. It is being published since 1997.
The Business Confidence Index (BCI) is calculated on a net balance basis. The companies that are surveyed in the index are asked about whether there is a positive or negative outlook. Specifically, how business conditions are likely to change in the next three months, and the result is calculated as positive minus negative responses, which is the net balance. Thus, a balance above zero reflects improving business confidence, and lower than zero indicates falling confidence. A positive outlook can, therefore, be regarded as healthy for the near term economic outlook, in turn, will benefit growth-related economic instruments.
What does the Business Confidence Index (BCI) of a country measure?
BCI aims to measure the expectation of business conditions for the upcoming months and takes the average of trading, profitability, and employment indices of the companies under the survey. The Central Bank analyses the data according to industry, region, and components. The monthly report of BCI covers a lot of businesses, including tax regulation, housing prices, interest rates, supply and demand, labour market, wages, input, output prices, and others. The companies that are surveyed operate in various industries, including manufacturing, construction, mining, retail and wholesale trade, transportation, recreation and entertainment, finance, and IT. A detailed text report published by analysts also includes the responses of some companies to the questionnaire set by them. The text report looks at the factors influencing the company’s opinion.
A reliable source of information on ‘Business Confidence Index’ for Major currencies
The Business Confidence Index (BCI) is published by the National Bank of their respective nations. However, there are business analysts who also publish a monthly report on the same. Here the report will have a lot more information and analysis as compared to one released by National Bank. The business analyst report will also predict the economy and growth of various industries and their contribution to the country’s revenues. One can also get the data from financial economists as they rank the order of confidence in carrying out a business based on the risks. Here are a few BCI’s of major economies of the world.
GBP (Sterling) – https://tradingeconomics.com/united-kingdom/business-confidence
What do traders care about the Business Confidence Index (BCI) and its impact on a currency?
The Survey of Business Confidence Index (BCI) belongs to the group of economic indicators, which measure financial confidence among businesses as well as consumers. The business confidence influences most of the fundamental analysis of the Forex market, primarily because the effect it has on the currency. If the business confidence index number is higher, it will have a positive impact on the currency. This is because higher confidence indicates the growth of a country’s economy. Conversely, if these numbers are low, it will have a negative impact on the currency. Hence, traders and investors prefer holding the currencies of those countries with higher BCI values.
In addition to this, the BCI provides a clue as to how the public would estimate their ability to obtain employment and how their income would be spent. In case the indicator gives terrible numbers, the consumers will restrain from making large and expensive purchases like luxury items and automobiles. Banks and governments are also affected by reduced confidence. Lending will decrease, and the number of mortgage applications may drop. Central banks may look to cut benchmark interest rates, and governments will be forced to reduce taxes to propel economic growth.
Frequency of the release
The BCI is calculated based on monthly and quarterly surveys on business conditions and business expectations of executives and entrepreneurs. So one can find the data of any country on a monthly as well as a quarterly basis. The BCI is an early warning system to forecast the trend of the economy. In addition, from a Business Confidence Survey (BCS), a Present Business Situation Index (PSI), which reflects the present business situation of enterprise is also, released monthly and every three months.
The Bottom Line
BCI is a powerful indicator that can move Forex prices. At the time of its release, BCI can cause slight volatility in the currency prices, especially if the results are surprising. The timing of its release is tracked by many economic calendars and strategies for trading when the numbers are out should be very well learned and understood by traders. Now every country is even coming up with its version of investor and business confidence indicators so these also can be looked at by the traders when having a country-specific approach.