CEIZ index for June 2018: Slower GDP growth rate in the second quarter of 2018

In June 2018, CEIZ index registered a decrease of -0.37 index points compared to May of the same year. The June 2018 index value is also the lowest value that CEIZ has registered since December 2014, when the economy had just come out of a long recession. Although the index value continues to be positive, there has been a downward trend since November 2016, which indicates slower growth. Seasonally adjusted figures show that three out of four index components recorded growth in the second quarter compared to the first quarter. These are, in higher-to-lower order: state budget income from VAT revenues, number of tourist arrivals and real growth in retail trade, while industrial production recorded a decline.

Based on CEIZ index trends, we expect the annual real GDP growth rate to amount to 2.2 percent in the second quarter of this year, which is somewhat weaker than the 2.5-percent GDP growth rate achieved in the first quarter of 2018, but is the same as the rate recorded in the last quarter of 2017. Seasonally adjusted data indicate that GDP grew by 0.7 percent in April, May and June of 2018 compared to the previous quarter.

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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