Macroeconomics Update

OECD Composite Lead Indicator

13th June, 2010

What is OECD?

The Organization for Economic Co-operation and Development (OECD) is an international

economic organization of 31 countries. Its objective is to achieve the highest sustainable
economic growth and employment and a rising standard of living in Member countries, while
maintaining financial stability, and thus to contribute to the development of the world
economy.

What is OECD CLI?

The OECD Composite Lead Indicator (CLI) is designed to provide early signals of turning
points in business cycles fluctuations of economic activity around its long term potential
level. The approach, focusing on turning points (peaks and troughs), results in CLIs that
provide qualitative rather than quantitative information on short-term economic movements.
Four cyclical phases form the basis of this qualitative approach are:

Expansion CLI increasing and above 100

Downturn CLI decreasing and above 100
Slowdown CLI decreasing and below 100
Recovery CLI increasing and below 100

The OECD CLIs are composite indicators: with components that target the early stages of
production, respond rapidly to changes in economic activity, are sensitive to expectations of
future activity or are control variables that measure policy stances.

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OECD Composite Lead Indicator

OECD CLI for April 2010:

The OECD on 11th June 2010 released its series of CLIs for the month of April 2010. Some of
the key points are

OECD composite leading indicators (CLIs) for April 2010 point to a slowing pace of
expansion in most OECD countries

The CLI for the OECD area increased by 0.4 point in April 2010, slightly lower than the
0.5 point increase in March. April was the ninth consecutive month that the rate of
increase has slowed

Tentative signs of a potential peak have appeared in Brazil with stronger evidence
emerging in France, Italy, and especially China

The CLIs for Japan, the United States and Germany continue to indicate that the
ongoing expansion in activity is likely to be maintained, but possibly at a slower pace

CLI for India increased by 0.17%, but the pace of increase has slowed down for the fifth
consecutive month, showing signs of a potential peak in the coming months

CLI for the Euro Zone increased by 0.11%, but the pace of increase has slowed down
for the nine consecutive month, showing signs of a potential peak in the coming months

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OECD Composite Lead Indicator

Source: OCED CLI

Note: The horizontal line 100 shows the long-term trend in industrial production (the reference series). Expansion denotes
a CLI increasing above 100; downturn a CLI decreasing but still above 100; slowdown a CLI decreasing below 100;
recovery a CLI increasing but below 100.

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Macroeconomics Update

Kredent Analysis:

The OECD CLI series for the month of April clearly points out a slowdown in the overall
recovery process in the overall macroeconomic process around the globe.

The biggest cause of concern that comes out of the series is a peaking out of two of the
emerging economies Brazil and China. Over the last one week the global economic pace is
hinting a phase of stagflation in China which is falling Industrial production or growth with the
rise in Inflation. Over the last one month more than three bond auction by the Chinese
government have failed to be fully subscribed because of investors demanding higher yield in
anticipation of Inflation.

Thus, we would strongly believe that the investors should move out of cyclical and move more
towards defensives since the Global macro economic structure hints slowdown.

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