Harmonised competitiveness indicators

The harmonised competitiveness indicators (HCIs) provide an overview of the price and cost competitiveness of each euro area country relative to its own principal competitors in international markets (including partners in the euro area).

The indicators are constructed using the same methodology and data sources as the nominal and real effective exchange rates (EERs) of the euro for the euro area as a whole.

The nominal HCIs of a euro area country aim to track changes in the value of the euro relative to the currencies of its principal trading partners.

The real HCIs aim to assess a euro area country’s price or cost competitiveness relative to its principal competitors in international markets. They are calculated as the nominal HCIs deflated by consumer price indices (CPIs), producer price indices (PPIs), GDP deflators and unit labour costs for the total economy (ULCT).

The HCIs reflect a common understanding between Eurosystem national central banks (NCBs). They complement other competitiveness indicators published by some NCBs, which may follow different methodologies and, in some cases, use different price and cost measures in order to account for the specific circumstances in their countries.

• Harmonised competitiveness indicators based on consumer price indices
• Harmonised competitiveness indicators based on GDP deflators
• Harmonised competitiveness indicators based on unit labour cost indices for the total economy
• All harmonized competitiveness indicators time series
• Sets of trade weights

Release calendar

Methodology

The HCIs are conceptually equivalent to the real EER^[1] of a currency. They are calculated on the basis of weighted averages of bilateral exchange rates vis-à-vis the currencies of the trading partners of each euro area country and are deflated by appropriate cost or price indices.^[2] The methodology is based on the following elements:

Trade basis

The weights are based on bilateral data on trade in manufactured goods, as defined in Sections 5 to 8 of the Standard International Trade Classification (i.e. excluding agricultural, raw material and energy products) and trade in services (Total EBOPS Services)^[3] for the periods 1995-97, 1998-2000, 2001-03, 2004-06, 2007-09, 2010-12, 2013-15, 2016-18 and 2019-21.

Weighting method

The weights incorporate information on both exports and imports. Import weights are the simple shares of each partner country in the total imports. Exports are double-weighted in order to account for “third-market effects”, i.e. to capture the competition faced in foreign markets from both domestic producers and exporters from third countries.^[4] The final overall weights of each partner country are obtained as the weighted average of the export and import weights.

Eight sets of weights are currently available, based on trade data for the periods 1995-97, 1998-2000, 2001-03, 2004-06, 2007-09, 2010-12, 2013-15, 2016-18 and 2019-21. The HCIs are chain-linked at the end of each three-year period. The weights are updated every three years in order to reflect recent developments in the pattern of international trade.

Trading partners

The HCIs of a euro area country based on consumer price indices, producer price indices, GDP deflators, and on unit labour costs are calculated against three groups of trading partners:

• vis-à-vis the other 19 euro area countries;
• vis-à-vis the other 19 euro area countries and the group of 12 trading partners which comprises Australia, Canada, Denmark, Hong Kong, Japan, Norway, Singapore, South Korea, Sweden, the United Kingdom, Switzerland and the United States;
• vis-à-vis the other 19 euro area countries and the group of 18 trading partners, which comprises the group of 12 plus Bulgaria, China, Czech Republic, Hungary, Poland and Romania;

The HCIs based on consumer prices and GDP deflators are additionally calculated:

• vis-à-vis the other 19 euro area countries and the group of 41 trading partners, which comprises the group of 18 plus Algeria, Argentina, Brazil, Chile, Colombia, Iceland, India, Indonesia, Israel, Malaysia, Mexico, Morocco, New Zealand, Peru, the Philippines, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, Ukraine and the United Arab Emirates.

Deflators

• consumer price indices: for European countries, the all-items Harmonised Index of Consumer Prices^[5] as published by Eurostat is used; for the other trading partners, all-item national consumer price indices are used;
• producer price indices: for European countries, the Producer Price Index – domestic sales in the manufacturing sector, classified according to the NACE Rev.2 classification as published by Eurostat – is used; for the other trading partners, these data are derived from data published by the BIS;
• GDP deflators: for European countries, GDP deflators are derived from their quarterly national accounts as published by Eurostat; for the other trading partners, they are derived from their national accounts as published by the BIS, OECD and IMF;
• unit labour costs in the total economy: the ratio of total compensation per employee to labour productivity, with labour productivity measured as GDP at constant prices divided by the total number of persons employed; for European countries, the available data are derived from their quarterly national accounts as published by Eurostat; for the other trading partners, these data are derived from their national accounts as published by the BIS, OECD and IMF;

Seasonally adjusted data are used in order to eliminate the effect of seasonal patterns and temporal disaggregation is performed based on annual series if quarterly data are not available. Non-deflated HCIs are available on the ECB website, in the Statistical Data Warehouse.

Caveats

Indicators based on consumer price indices are the most widely used indicators of price competitiveness since they offer the best data quality and comparability across countries, are available on a timely basis (including for emerging market economies) and are subject to only minor revisions. Like all Harmonised Competitiveness Indicators, however, they have a number of drawbacks from a conceptual point of view (e.g. the indicators based on consumer price indices exclude some tradable goods, such as capital goods; they are affected by indirect taxes and subsidies and they are only indirectly related to production costs).^[6]

Indicators based on unit labour costs usually show some volatility and are subject to more significant revisions, owing to the specificities of the compilation of statistics on wages and employment.

The indicators based on GDP deflators can be affected by the volatility of quarterly GDP series, particularly for smaller economies. Whole year results may be more reliable indicators of underlying trends. The comparability of these indicators can also be affected by distortions resulting from taxes and subsidies.

Overall, comparability across countries can be affected by the inclusion of prices or costs of goods and services that are not internationally tradable, and thus might only indirectly affect the price competitiveness of the export sector.