CEIZ index for May 2018: 2.3 percent real GDP growth rate in the second quarter of this year

In May 2018, CEIZ index registered a growth in value of 0.23 index points when compared with the previous month. At the same time, the May index value was lower by 0.12 index points compared to the average index value in the first quarter of 2018. This indicates that the country’s economic activity is on a slightly lower level in the second quarter with respect to the first quarter of 2018, when the quarterly GDP rate of change was 2.5 percent. However, since the index value in May 2018 was lower compared to May 2017, we can conclude that the slight growth of economic activity in the middle of the second quarter of 2018 was not as intensive as in the second quarter of 2017. Based on CEIZ index trends we therefore expect the annual growth rate of real GDP to amount to 2.3 percent in the second quarter of this year, which represents just a mild deceleration of the 2.5 percent GDP growth rate recorded in the first quarter of 2018. Seasonally adjusted figures indicate that GDP grew by 0.8 percent in the second quarter of 2018 compared with the previous quarter. However, in order to analyze the business cycle in the second quarter of 2018, we will have to wait for the CEIZ index values for June 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.