CEIZ index for 2018: Drop in industrial production at the end of the year lowers GDP growth rate in 2018 to 2.6 percent

February 11, 2019
In December 2018, CEIZ index recorded a value of -0.9 index points, which is the lowest index value since August 2014. Tourism grew on an annual level in December at a rate above 10 percent, and retail trade followed it closely with only a slightly lower growth rate. However, industrial production, which has been recording consecutive drops in annual growth rate ever since August, fell steeply in December by -6.7 percent. Largely because of the negative industrial production trends, the index recorded drops in value when compared to the previous month in all three months of the last quarter, which indicates a deceleration of economic activity compared to the third quarter. CEIZ also indicates a deceleration of the economic activity’s growth rate on an annual level. Based on CEIZ index trends, we expect that the real GDP growth rate could amount to 2.3 percent in the fourth quarter of 2018 when compared to the same period of the previous year, significantly below expectations based on the data for October and November. Seasonally adjusted data indicate that in the last three months of 2018, GDP was 0.2 percent lower compared to the previous quarter. If we take the earlier quarters into consideration, when real GDP growth rates amounted to 2.5, 2.9, and 2.8 percent, we expect that the GDP growth rate for the entire year of 2018 could amount to 2.6 percent.

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.

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