CEIZ index for 2017: Decline in industrial production at the end of the year lowered the GDP growth rate at 2.7 percent in 2017

In December 2017, CEIZ index reached the value of -0.7 index points. It is the lowest registered index value since September 2014. CEIZ components demonstrated diametrically opposed trends depending on the particular part of the economy they represent. Although tourism continued to register a sharp growth rate, retail trade followed with the lowest positive growth rate in 2017, while industrial production registered a drop of nearly 5 percent. In all three months of the last quarter, index recorded a decrease in values when compared to the previous month indicating a deceleration in economic activity when compared to the third quarter. Measured on an annual level, CEIZ value points toward a deceleration of the economic activity’s growth rate. Based on CEIZ index trends, we expect that the real GDP growth rate could amount up to 1.9 percent in the fourth quarter of 2017 when compared to the same period of the previous year.  
In seasonally adjusted terms, data suggest that when compared to the last quarter, GDP fell by 0.8 percent in the last three months of 2017. If we take into consideration the last quarters―when real GDP growth rates amounted up to 2.6, 3.0, and 3.3 percent―we expect that the GDP could have grown by 2.7 percent in the entire 2017.

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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