ReseRve bank of austRaliaelectRonic indicatoRs of economic activity
as a potential economic indicator, with the financialmessage service provider SWIFT releasing an indexthat helps to predict OECD GDP growth using SWIFT payments sent on behalf of corporate customers.
SWIFT (2012) suggests that inclusion of customer-to-customer payment volumes data can improvethe explanatory power of a simple model of GDPgrowth.In Australia, data are available on the SWIFT paymentssettled across the Reserve Bank Information and Transfer System (RITS), which is Australia’s real-timegross settlement system.
Although banks can usevarious payment instruments for their customers’transactions, large-value corporate customerpayments will usually be sent using SWIFT,particularly wholesale transactions relating tobusiness investment. These data have several advantages over other moreestablished indicators of economic activity. They arevery timely, with a day’s payment data available atthe conclusion of each business day. They cover avery large number of payments and being actualfund transfers of banks and their customers arefree from reporting error and revisions. However,RITS transaction data do have some limitations. The data include financial transactions and clearlyexclude many small transactions by individuals andbusinesses, while shifts between payment methodscan introduce volatility. Also, payments betweentwo customers holding accounts at the same bank will not normally be sent to RITS for settlement andare therefore not captured in the data. The historicaltime series is also relatively short compared withmore established indicators. While electronicpayments data clearly have their limitations, it isworth noting that existing measures, such as GDP
3 SWIFT uses message types to distinguish between different businesspurposes; the index constructed by SWIFT (2012) includes customer-to-customer payments (SWIFT MT103 payments) but does notinclude bank-to-bank payments (SWIFT MT202 payments).4 Other payments settled in RITS include retail transactions such asdirect entry, cheques and card transactions, as well as transactionsarising from wholesale debt securities, equity and money markettransactions. For further discussion on the settlement of payments inRITS, see Gallagher, Gauntlett and Sunner (2010).
and gross national expenditure (GNE), are alsoimperfect estimates of actual economic activity.Nevertheless, SWIFT payments track changes inthese measures of economic activity reasonablywell (Graph 1, Table 1).
Interestingly, the number,rather than the value, of payments is more highlycorrelated with economic activity. This may bebecause volatility in the values series is affected bylarge financial transactions, such as swaps, whichare not directly relevant for measuring economicoutput and demand. The relationships with real andnominal measures of economic activity are similar.Given the greater emphasis on real measures of activity in economic analysis, the following analysisfocuses on the usefulness of electronic payments asan indicator of
measures of economic activity.Another way to assess the usefulness of wholesalepayments data is to observe whether they canimprove the explanatory power of models of economic activity. A test that represents a relativelylow hurdle is whether wholesale payments containinformation not already provided by a lag of the
5 For the purposes of this article, the SWIFT data were aggregated andseasonally adjusted at a quarterly frequency, after being lagged byone month; the quarterly SWIFT data have a stronger relationshipwith official measures of economic activity when lagged by onemonth, which is consistent with invoicing arrangements that typicallyallow some time for payment after receipt of the service or good.
-2-1012-4-2024-2-1012-4-2024Trend, quarterly growth
SWIFT Payments and Economic Activity*
*Number of SWIFT interbank payments settled in RITS, 7-periodHenderson trendSources: ABS; RBA