A Leading Indicator for the Peruvian Economic Real Activity

Given the lag in the publication of monthly GDP results , it is important to have economic real activity leading indicators that allow us to learn more about the current state of the economy. The latter is very useful for policy decision making. For that reason, in this paper we build a leading indicator for the Peruvian economy following Aruoba et al. (2009). The indicator is extracted as the latent common component among six macroeconomic variables, i.e. electricity, cement consumption, taxes, chicken sales, mining production and monthly GDP. The main advantage of this indicator is the fact that it allows us nowcast the current GDP growth with a lag of only one week. Our results show an 85 percent correlation of the leading indicator with actual GDP growth.