CEIZ index for March 2018: GDP growth in the first quarter of 2018

In March 2018, CEIZ index registered a decrease in value of 0.08 index points when compared to February of the same year. At the same time, the March index value from this year is the lowest value CEIZ registered since December 2014 when the economy just came out of a long recession period. In the first quarter of this year CEIZ reached its highest value in January, while February and March registered a decrease in value indicating thereby that in the first quarter of this year economic activity displayed a tendency toward further deceleration, which intensified near the end of the quarter. As far as index components are concerned, real growth in retail trade and the number of tourist arrivals registered an increase, while industrial production and state Budget income from VAT revenues recorded a decline on an annual level, which, in turn, provoked a further drop in CEIZ index value in March.

Based on CEIZ index trends, we expect a 2.3 percent real GDP annual growth rate in the first quarter of this year, which is a slightly better outcome when compared to the 2 percent GDP growth rate registered in the last quarter of 2017. However, it also indicates a considerably weaker outcome when compared to annual GDP growth rates achieved in the first three quarters of 2017. In seasonally adjusted terms, when compared with the previous quarter, GDP increased by 0.6 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.