Public procurement data as a leading indicator of public investment

This box examines the use of public procurement1 data for analytical and forecasting purposes in the area of fixed investment. The forecast for public investment in the period of drawdown of EU funds from the previous programme period and the switch to the new period is surrounded by considerable uncertainty. This increases the importance of leading indicators for this area. Both the material and sectoral structures of fixed investment indicate that 2015 saw increased investment in buildings and structures, especially in the government sector. This reflected continued efforts to draw down all the EU structural funds that were available in the previous programme period, predominantly for infrastructure projects.

Investment-type public procurement2 consists largely of procurement of construction and supplies (see Chart 1). By contrast, procurement of services is recorded mainly as consumption in the national accounts methodology. According to the sectoral accounts, seasonally adjusted investment-type public procurement leads public investment by around three quarters3 (see Chart 2). It can therefore be used as a leading indicator of public investment. The increased efforts to draw down EU funds in 2015 H2 seem to have shortened the lead to two quarters. At the same time, the currently observed public procurement data are indicating a sharp fall in public investment this year. This is consistent with the expected only gradual start to the drawdown of funds from the new programme period.

Chart 1 (BOX) Assigned public procurement
The bulk of public procurement is investment-type procurement
(CZK billions; seasonally adjusted; source: MRD)


Chart 2 (BOX) Public investment and investment-type public procurement
Public procurement data can be used as a leading indicator of public investment; they are currently indicating a sharp fall in public investment this year
(CZK billions; seasonally adjusted; source: CZSO, MRD)


Growth in private investment in the Czech Republic, as a small and open economy, can largely be explained by changes in foreign demand. The combined deviation of foreign demand and public investment from their trends therefore corresponds to the deviation from the trend in total fixed investment.4 This relationship shows that the currently significantly positive deviation from the trend in fixed investment is being driven exclusively by growth in public investment (see Chart 3). At the same time, the sharp fall in public investment associated with the only gradual start to the new programme period will result in a temporary negative deviation of fixed investment from its trend in 2016. By contrast, foreign demand will have a slightly positive effect on total fixed investment.

Chart 3 (BOX) Fixed investment gap
The combined deviation of public investment and foreign demand from their trends corresponds approximately to the deviation of total fixed investment from its trend 
(in % of trend)


1 Since 2009, the Ministry for Regional Development has registered almost 80,000 assigned public procurements totalling more than CZK 1 trillion.
2 Adjusted for contracts of sectoral contracting authorities, which fall under investment of non-financial corporations in the national accounts.
3 The volumes of investment-type public procurement and public investment show a relatively constant difference in level of around CZK 15 billion a quarter. This difference is due mainly to statutory minimum limits for the publication of public contracts.
4 Calculated as the deviation from the trend using the HP filter with coefficient λ = 1,600.