CEIZ index for the first quarter of 2020: Significant slowdown of GDP growth in the first quarter of 2020

In each of the first three months of this year, the CEIZ index recorded a decrease compared to the month before. In January, the value of the index thus dropped by 0.77 points compared to December 2019, in February it decreased by an additional 0.11 points, while in March the drop was as high as 1.87 index points. All four components of the index (industrial production, retail trade, the number of tourist arrivals, and state budget income from VAT revenues) contributed to its decrease in March. The drop in the index value in March is also its largest decline in absolute terms since April 2012, when the Croatian economy was experiencing years of recession. The CEIZ index movements in the first three months of this year thus point to a significant slowdown of economic activity throughout the quarter, with a particularly pronounced decline in economic activity in March, as a consequence of the measures taken to contain the COVID-19 epidemic. Based on the CEIZ index movements, we expect that real GDP growth rate in the first quarter of 2020, compared to the same period in 2019, could amount to 1.2 percent*, which is the lowest recorded quarterly GDP growth rate since the fourth quarter of 2014. Seasonally adjusted data suggest that, compared to the previous quarter, GDP in the first three months of 2020 was 0.3 percent higher. It should be noted that, considering the size of the shock that hit the economy in March due to the COVID-19 epidemic and consequent structural break in the data that are used to calculate the index value, GDP growth estimates based on the index cannot be considered entirely reliable.

* 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.