CEIZ index for November 2018: Somewhat stronger GDP growth in the fourth quarter

In November 2018, CEIZ index recorded a growth of 0.11 index points compared to the same month in 2017, while compared to October 2018 it rose mildly by 0.07 index points. CEIZ also recorded a mild increase in the first two months of the fourth quarter compared to the third quarter of 2018, thus suggesting a somewhat accelerated growth of economic activity at the end of 2018. The higher index value in November can be attributed mostly to increased state budget income from VAT revenues, higher retail trade volume, and increased tourist overnight stays. The index growth in November 2018 would have been higher had there not been a month-to-month drop in industrial production.

Based on CEIZ index trends, we expect the real GDP growth rate to amount to 2.9 percent in the fourth quarter of 2018 compared to the same period of the previous year, which is a somewhat higher GDP growth rate compared to the 2.8 percent annual GDP growth rate recorded in the third quarter of 2018. The quarterly GDP growth rate in the last quarter of 2018 should amount to 0.3 percent judging by the CEIZ index value. A new and more precise estimate of the real GDP growth rate in the last quarter of 2018 will be available when the data for December 2018 become available.

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, or rather, recession.