CEIZ index for August 2018: 2.4 percent real GDP growth in the third quarter

Since June of this year, the CEIZ index has been recording a decrease, and in August it reached its lowest level in the last four years. Although the index has been registering a decrease on an annual level ever since January 2017, in the first two months of the third quarter of 2018 that decrease accelerated compared to the previous three months, amounting in average to -1.5 points. Seasonally adjusted real values show that half of the index components recorded growth compared to July, while the other half recorded a decrease, particularly state budget income from VAT revenues which recorded a -14.2 percent decrease in a month. Tourist arrivals also brought a negative contribution on a monthly level of -1.2 percent compared to July.

Compared to the second quarter of 2018, in July and August the index cumulatively dropped by -0.6 index points. At the same time, the average value of the index in July and August was 0.5 index points lower compared to the average index value in the second quarter of 2018. Such dynamics indicate that in the third quarter of this year, the economic activity decelerated compared to the previous three months. Based on CEIZ index trends, we expect the annual real GDP growth rate to amount to 2.4 percent in the third quarter of this year, which represents a deceleration compared to the 2.9 percent real GDP growth rate registered in the second quarter of 2018. Seasonally adjusted figures show that compared to the previous quarter, GDP in the third quarter of 2018 grew only by 0.6 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, or rather, recession.

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