CEIZ index for February 2018: GDP growth at the beginning of year

In January and February this year CEIZ index reached its highest values in the past half year. Although the index keeps registering a decrease in value on an annual level since January 2017, in the first two months of this year that decrease in value decelerated considerably, to -0.4 and -0.6 points. In February 2018 all CEIZ index components grew on an annual level, especially revenues from value added tax, which registered substantial growth and made the biggest positive contribution to CEIZ index value change in February this year.

When compared to the last quarter of 2017, index grew cumulatively by 0.5 index points in the first two months of this year. At the same time, the average index value in January and February was 0.6 index points higher than the average index value in the last quarter of 2017. Such dynamics of the CEIZ index suggests that the economic activity in the first quarter of this year accelerated when compared with the end of the previous year. Based on CEIZ index trends, we therefore expect a 2.7 percent real GDP annual growth rate in the first quarter of this year, indicating thereby a considerable improvement when compared with a 2 percent GDP growth rate registered in the last quarter of 2017. In seasonally adjusted terms, when compared with the previous quarter, the GDP increased by 1.0 percent in the first three months of 2018.

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.

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