CEIZ index for September 2018: Modest GDP growth in the third quarter

In September 2018, CEIZ index fell by 2.3 index points when compared to the same period of the previous year, indicating thereby the biggest annual decrease in index value registered in this year. CEIZ has been registering a decrease on both an annual and a monthly level since June, which points to a slowdown of the business cycle. The low index value from September can be attributed to a decrease in state Budget income from VAT revenues and also to a drop in industrial production. On the other hand, retail trade and particularly tourism―which registered an increase in tourist arrivals by 10.7 percent in September―made a positive contribution to the index.

Based on CEIZ index trends, we expect the real GDP growth rate to amount to 1.9 percent in the third quarter of this year when compared with the same period of the previous year, indicating a considerable deceleration in economic activity when compared to the first two quarters (when GDP grew at an average rate of 2.7 percent). Seasonally adjusted figures show that, compared to the previous quarter, GDP grew by only 0.2 percent in the third quarter 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.