CEIZ index for December 2022: Probability of the Croatian economy entering technical recession rises

February 24, 2023

In December 2022, CEIZ index decreased in value by 3.37 index points compared to the same month in 2021. At the same time, compared to November 2022, the index value dropped by 0.36 points. When observing individual index components, three index components recorded a lower value in December 2022 compared to December 2021: state budget income from VAT revenues, volume of industrial production and real retail trade, while the number of tourist arrivals recorded a higher value. At the same time, compared to November 2022, seasonally adjusted value of index components dropped in December for the volume of industrial production and real retail trade, while the remaining two index components recorded higher monthly seasonally adjusted values.

The described index movements suggest that GDP in the fourth quarter of 2022, compared to the same quarter in 2021, rose by 3.6 percent, which is the lowest annual GDP growth rate in 2022. Overall GDP growth rate in 2022 would, according to these estimates, amount to 6.2 percent. When observing seasonally adjusted data, according to the estimates based on CEIZ index movements, GDP in the fourth quarter of 2022 dropped by 0.4 percent compared to the previous quarter. Considering the fact that GDP in the third quarter of 2022 also recorded a negative quarterly change rate, a drop in seasonally adjusted quarterly GDP value in the fourth quarter suggests that the Croatian economy probably entered a technical recession. However, considering the differences in seasonal adjustment methods used by different institutions, in order for technical recession to be declared, we should wait for official seasonally adjusted GDP values that are announced by the Croatian Bureau of Statistics.

* Monthly assessment of GDP growth rate based on CEIZ index value is indicative and should be used primarily as information on the current condition and trend of the business cycle in Croatia.

What is CEIZ?

Coincident Economic Index of the Institute of Economics, Zagreb (CEIZ) is a monthly composite business cycle indicator developed by the Institute of Economics, Zagreb. Its purpose is to provide timely information on the current business cycle condition. Consequently, the CEIZ index value changes simultaneously with the business cycle, thus indicating the present state of the economy. The CEIZ index was constructed by applying in parallel a dynamic factor model and a Markov switching model. Details on the CEIZ index methodology are described in the paper: Rašić Bakarić, Ivana, Marina Tkalec and Maruška Vizek, 2016, “Constructing a Composite Coincident Indicator for a Post-Transition Country”, Ekonomska istraživanja (Economic Research), 29 (1), pp. 434–445. 

The CEIZ index is useful in three ways. First, it is a single-number business cycle indicator containing information that would otherwise have to be accrued by analyzing a large number of economic series. Second, unlike the GDP series, it provides monthly estimates on the state of the economy, thus providing information on fine changes that took place in a short period of time. Third, the CEIZ index is available one to three months prior to quarterly GDP estimates, meaning that policy-makers and the general public can observe the current state of the economy in a timely manner. 

The index is to be interpreted in such a way that the positive values represent economic growth while the negative ones represent a decreased economic activity.

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