Business cycle heatmap

The business cycle heatmap produced by the NAOF's fiscal policy monitoring provides a real-time picture of the Finnish business cycle.

The heatmap shows the observations of all cyclical indicators from 2019 to 2022. The economy has been recovering rapidly from the Covid-19 pandemic starting from spring 2021. However, the cyclical peak seems already to be behind, as the impacts of the war started by Russia have begun to appear in the heatmap.

Background to the heatmap

The business cycle heatmap consists of eleven cyclical indicators. The colour of the map changes according to the change in the indicator values. The indicators have been selected on the following grounds:

  1. historically, they have described cyclical fluctuations accurately

  2. monthly data are available on them

  3. they reflect the development of GDP or its component.

In the heatmap, the red colour describes a situation where the economy of the indicator is growing faster than average. Accordingly, blue represents a slowdown in economic growth. The higher the share of red or blue indicators at the same time, the more likely it is that the economy is experiencing either good times or bad times.

The NAOF utilizes the heatmap in its fiscal policy analyses. The heatmap is based on a model prepared by the Estonian Fiscal Council (Eelarvenõukogu), and it has been adapted to the circumstances in Finland.

Table of variables

Variable Definition Source Weighting in the composite indicator
Consumer price index Annual change, % Statistics Finland 0.1
Wages and salaries Wages and salaries, annual change % Statistics Finland 0.1
Unemployment rate Registered unemployed at TE Offices divided by the labour force according to the Labour Force Survey, annual change, % MEAE/Statistics Finland 0.1
Employment rate Employment rate, 15–64-year-olds, annual change, % Statistics Finland 0.1
Vacancies Annual change, % MEAE 0.1
Sub-indicators of the Economic Sentiment Indicator (ESI):
-Industrial confidence indicator
-Services confidence indicator
-Consumer confidence indicator
-Construction confidence indicator
-Retail trade confidence indicator
Monthly index, seasonally adjusted (Dainties, DG ECFIN) DG ECFIN




Capacity utilization Capacity utilization rate, monthly index, seasonally adjusted (Tramo-Seats) EK 0.1


Composite indicator on monthly and annual level

Figure 1: Monthly and annual composite indicator

Figure 1 shows the observations of two composite indicators for the years 2006 to 2021. The monthly composite indicator falls sharply in April 2020 and rises during the next 12 months close to the level of early 2020. The annual indicator illustrates the decline less radically. You can select the period shown in the figure.

A composite indicator whose value is calculated from the heatmap variables has also been compiled of the individual cyclical indicators. The variables of the composite indicator have been weighted as follows: the weight of the sub-indicators of the Economic Sentiment Indicator (ESI) is 40% and that of each of the remaining variables is 10%. Thus, half of the weight is derived from real economic variables and half from sentiment indicators. The weights of individual variables of the ESI’s sub-indicators are updated in relation to each other according to the relative weights used by the Commission. The accurate weights are indicated in the table above.

Figure 1 shows the composite indicator values per month and per year. As shown in the figure, the monthly composite indicator illustrates the cyclical conditions much more sensitively than the annual indicator. This is particularly evident in the observations of 2020 and the accuracy with which the indicator reacted to the Covid-19 crisis. As is clear from the figure, the monthly indicator was very sensitive to the sudden economic stop in Finland in April 2020.

Composite indicator and output gap

Figure 2: Annual composite indicator and output gap

Figure 2 shows the observations of the heatmap’s annual composite indicator and the NAOF’s output gap estimates for autumn and spring 2020 and autumn 2019. The figure focuses on the years 2006–2020, but you can modify the period shown. The figure shows that both the composite indicator and the output gap often develop similarly, even though there are differences, too. Output gap estimates can be specified to a great extent in different rounds, which can be seen in the figure by comparing the estimates of the different rounds.

The NAOF’s fiscal policy monitoring team also compares the composite indicator with the output gap. Figure 2 illustrates not only the composite indicator but also the output gap for autumn 2020, spring 2020 and autumn 2019, calculated by the NAOF using the European Commission method. The output gap is the difference between potential output and actual output, or GDP. The NAOF estimates it using the production function method shared by the Commission and the Member States. The output gap is estimated on the basis of the data available at the time. When the statistical data and forecasts are specified, the picture of the economic cycle can sometimes change considerably (cf. the estimates of autumn 2019 and spring 2020). The difference and benefit of the heatmap and the composite indicator based on it over the output gap series is that the heatmap is based solely on statistical data that are usually updated only to a small degree.

The statutory task of the NAOF’s fiscal policy monitoring is, among other things, to monitor the development of the general government structural fiscal position. When the structural fiscal position is assessed, it is essential that the impact of business cycle fluctuations is excluded from the deficit calculated as the difference between general government revenue and expenditure. The established cyclical adjustment method used in the calculation of the structural fiscal position has been found to be uncertain to the extent that the NAOF has started to develop an alternative cyclical adjustment method. This makes it possible to obtain a more up-to-date picture of the development of the structural fiscal position and the uncertainty of the assessment, which essentially supports the implementation of the NAOF’s statutory task.

Sources: The NAOF, the Estonian Fiscal Council, the producers of the source statistics, i.e. the Ministry of Economic Affairs and Employment (MEAE), Statistics Finland, the Confederation of Finnish Industries (EK) and DG ECFIN, and Macrobond. The heatmap is based on the economic heatmap developed by the Estonian Fiscal Council.

More information on the heatmap developed by the Estonian Fiscal Council