CEIZ index for October 2018: Continued GDP growth after the third quarter

In October 2018, CEIZ index recorded a mild decrease of 0.09 index points compared to the same month a year earlier, and a growth of 0.19 index points compared to September 2018. At the same time, CEIZ increased mildly compared to the third quarter of 2018, thus suggesting a mild acceleration of economic activity at the very beginning of the fourth quarter. The higher index value in October can be attributed mostly to increased state budget income from VAT revenues, higher retail trade volume, and increased tourist overnight stays. The index growth would have been even higher had there not been a fourth consecutive month-to-month drop in industrial production in October.

Based on CEIZ index trends, we expect the real GDP growth rate to amount to 2.9 percent in the fourth quarter of 2018 compared to the same period of the previous year, which is a somewhat higher annual GDP growth rate compared to the 2.8 percent GDP growth rate recorded in the third quarter of 2018. A more accurate estimate of the real GDP growth rate in the last quarter of 2018 will be available when the data for November and December 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.