CEIZ index for January 2018: Moderate strengthening of economic activity at the beginning of 2018

In January 2018, CEIZ index grew by 0.67 index points compared to December 2017 and was 0.57 index points higher than the average index value recorded in the last quarter of 2017. This indicates that the economic activity in the country strengthened somewhat compared to the last quarter of 2017, when the economic activity stagnated based on quarterly GDP growth rates. However, considering that the index value in the first month of 2018 was lower than in January of 2017, we can conclude that the economic activity at the beginning of 2018 was not as strong as in the first quarter of last year. Based on CEIZ index trends, we expect that the real annual GDP growth rate in the first quarter of 2018 could amount to 2.8 percent, which is a significant improvement compared to the 2 percent GDP growth rate recorded in the last quarter of 2017. However, to be sure that this improvement in economic activity is long-lasting, we will have to wait for the CEIZ index values for February and March of 2018 to 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.

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