CEIZ index for July 2018: Deceleration of economic activity in the third quarter of 2018

In July 2018, CEIZ index registered a mild increase of 0.06 index points compared to June of the same year. At the same time, the index value was 1.46 index points lower when compared with the same month of the previous year. Although the index value itself remains positive, a downward trend has been observed since November 2016 indicating a deceleration of economic activity. Seasonally adjusted figures show that at the beginning of the third quarter only one of four index components (state Budget income from VAT revenues) registered an increase in value when compared with the end of the second quarter. The remaining three components―industrial production, turnover in retail trade, and the number of tourist arrivals―are registering a decrease in seasonally adjusted value when compared with June.

Based on CEIZ index trends, we expect the annual real GDP growth rate to amount to 2.2 percent in the third quarter of this year, which is slightly weaker than the 2.9 percent GDP growth rate registered in the second quarter of 2018, but is the same as the rate recorded in the last quarter of 2017. However, to be sure that this deceleration in economic activity is long-lasting, we will have to wait for the CEIZ index values for August and September 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.