CEIZ index for May 2019: Continued strong GDP growth in the second quarter of 2019

CEIZ index in May 2019 recorded a decrease of 1.01 index points compared to the previous month. As opposed to April 2019, when CEIZ registered a record growth owing to an increase in all its components, in May all index components demonstrated a decrease in seasonally adjusted component values compared to the previous month. At the same time, compared to May 2018, CEIZ registered an increase of 0.57 index points. Based on such developments, it can be concluded that the economic activity in May weakened compared to April. However, regardless of the May decrease in index value on a monthly level, it could be expected that, on the basis of developments in April and May, annual GDP growth in the second quarter of 2019 will amount to 4.0 percent, which is 0.1 percentage points higher than GDP growth in the first quarter. At the same time, seasonally adjusted data point to a GDP growth of 1.1 percent in the second quarter of 2019 compared to the previous quarter.

The conclusion on GDP growth in the second quarter based on CEIZ index value is partially founded in the record index growth in April 2019. However, it is also a result of the fact that the algorithm projecting the current index value also includes the actual GDP growth rates from previous quarters. This means that the strong 3.9 percent GDP growth in the first quarter of 2019 can have a significant positive impact on the index calculation in the second quarter. However, considering that GDP growth in the first quarter of 2019 was primarily based on strong growth of investments, which tend to exhibit more volatility, the current CEIZ index value might be partially over-rated, due to the estimation method used. It is important to mention that we will be able to make conclusions about the business cycle in the second quarter of 2019 with greater certainty when CEIZ index values for June become available.

* Monthly assessement 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.