CEIZ index for September 2020: Annual GDP drop of 13.2 percent in the third quarter of 2020

November 16, 2020

In September 2020, CEIZ index dropped in value by 3.5 index points compared to September 2019, while compared to the previous month, its value dropped only slightly by 0.78 index points. The described index movements suggest that the economic activity measured with annual change rates, in the third quarter of 2020, continues to slow down significantly, while the three-month fall in economic activities, registered in the second quarter of 2020, has stopped. When looking at index components, compared to the previous month and compared to the previous year, the number of tourist arrivals and state budget income from VAT revenues recorded a lower value in September.

Based on index movements, we expect the annual real GDP drop rate in the third quarter of 2020, compared to the same period last year, could amount to -13.2 percent*, which is a smaller GDP drop rate compared to the second quarter of 2020, when GDP registered a drop of -15.1 percent. Seasonally adjusted data calculated on the basis of GDP annual growth projection in the third quarter of 2020 suggest that, compared to the second quarter, GDP in the third quarter could increase by 3.0 percent, which in turn suggests that the bottom of recession has already been hit in the second quarter of 2020. Considering the fact that the economy experienced a structural break in the second quarter, which makes it difficult to make model projections of CEIZ index value and makes it, at the same time, less reliable, based on the CEIZ index projections, it would be the most appropriate to conclude that further sharp annual GDP drop can be expected, along with a certain degree of recovery on a quarterly basis, without specifying the rate of the drop.

* 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.

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