IFIS for the third quarter of 2021: Continued mild conditions with slight tightening compared to June 2021

Financial conditions remain mild in the third quarter of 2021, although slight tightening is present compared to June 2021 when the financial conditions were the mildest in the entire period since the IFIS index has been monitored (since March 2005). The mitigation trend has been present since the second quarter of 2020, considering the fact that the last tightening of financial conditions index was recorded in February and March 2020, due to the occurrence and spreading of the pandemic caused by the SARS-CoV-2 virus. Financial conditions in the third quarter of 2021 were milder compared to the same period in 2020. Favorable financing conditions have continued at the domestic market, while the domestic financial system liquidity remained extremely high, although lower compared to June 2021, when a record liquidity level was recorded. An increase in inflation has contributed to mild tightening of the domestic index component in the third quarter of 2021. The foreign index component recorded mild tightening of financial conditions in September. Favorable movements on world exchange markets have continued, despite a slight deceleration in growth compared to the first half of the year, due to the spreading of the delta variant of the SARS-CoV-2 virus, delay in supply chains and inflation pressures. Overnight interest rate on the banking market of the Euro-area (EONIA) registered a slight increase in the third quarter of 2021. Credit default swaps of the parent banks recorded a slight growth, which has impacted a mild tightening of the financial conditions foreign index component.
Uncertainty related to financial conditions in the rest of the year remains linked to the pandemic and its consequences on global supply chains and dynamics of economic recovery. Potential sources of vulnerability remain sustainability of debt, which depends on the speed of economic recovery and the level of real interest rates, as well as increased inflation pressures and the possibility of tightening monetary policy measures of leading central banks. 

What is IFIS? 

IFIS is a monthly financial conditions index developed by the Institute of Economics, Zagreb. It provides timely information on the average financial conditions in the economy which can serve as a significant determinant of projections and, consequently, of future economic activity. Financial conditions estimates can be useful for economic activity projections, macroeconomic policy evaluation and financial investment decisions.    

How is IFIS calculated?

Overall financial conditions are influenced by a number of variables. The variables are selected so as to reflect changes in the local and international financial environment, taking into consideration the specific features of the local market. To be able to estimate the developments in financial conditions based on the large clusters of variables, it is necessary to extract data from various parts of the financial system into a simple and easily understandable index. The IFIS index is calculated as the pondered average of variables that represent the fluctuations in the financial system, using the frequently applied method of principal components analysis. IFIS is standardized so that its arithmetic mean equals zero (which is the average index value in the entire observed period), while the standard deviation equals one. Positive values represent harsher financial conditions than the average, and negative ones represent milder financial conditions compared to the average. An increase in the index indicates harshening financial conditions, while a decrease indicates milder financial conditions.

The development of the IFIS index was supported by the EIZ Club, Agrokor, Atlantic and Privredna banka Zagreb.

Attached documents