CEIZ index for October 2020: Mild drop of quarterly GDP at the beginning of the fourth quarter

In October 2020, the value of CEIZ index registered a decrease of 3.1 index points, compared to the same month in 2019, while compared to the previous month, the index dropped only mildly by 0.1 index points. When observing the index components, compared to September, the number of tourist arrivals, state budget income from VAT revenues and industrial production volume index registered a lower value in October. The described index movements suggest that the economic activity, measured in GDP quarterly change rates, is slowing down very mildly in the fourth quarter of 2020 compared to the previous quarter. Considering the fact that the economy in the second quarter recorded a drop in quarterly GDP value and a growth in value in the third quarter, a drop of quarterly GDP in the fourth quarter suggests that the Croatian economy is going through a W-shaped recession, i.e. a double-dip recession.

Due to a partial lockdown of the economy during the implementation of epidemiological measures at the end of November and in December, it is expected that the estimated drop of quarterly GDP in the fourth quarter will, in the end, be more pronounced when data for November and December, which are not available at the moment, are included in the calculation. When these data become available, an estimation of the annual and quarterly GDP value change in the last quarter of 2020 will be published.

* Monthly assessment of GDP growth rate based on CEIZ index value is indicative and should be used primarily as information on the current condition and trend of the business cycle in Croatia.


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.