CEIZ index for February 2019: Significant increase in GDP growth rate in the first quarter

 
In February 2019, CEIZ index reached its highest value in the last year and a half, while compared to January 2019 it grew by as much as 0.6 index points, which is the highest recorded monthly increase since October 2016. Although the index had been recording a decrease on an annual level ever since January 2017, in February it rose by 0.3 percent compared to February 2018, thus ending the negative trend in annual growth rate. In February of this year, all CEIZ index components grew on an annual level, especially tourist arrivals, which rose by 20.7 percent, and real revenues from value added tax, which rose by 13.6 percent. The lowest positive contribution to the CEIZ index value in February of this year came from industrial production, which was the only component registering a decrease in seasonally adjusted value on a monthly level.

Compared to the last quarter of 2018, the index grew cumulatively by 0.9 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 2018. Such dynamics of the CEIZ index suggests that the economic activity in the first quarter of this year accelerated in comparison to the end of last year. Based on CEIZ index trends, we expect a 2.8 percent real GDP annual growth rate in the first quarter of this year, which is a considerable improvement when compared with the 2.3 percent GDP growth rate recorded in the last quarter of 2018. In seasonally adjusted terms, when compared with the previous quarter, GDP increased by 1.1 percent in the first three months of 2019.

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.