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Forecasting the direction of changes in Croatia´s industrial production with ICI and CROLEI

The results of Croatian business surveys produce valuable forecast information on the direction of changes of the economic activity in the manufacturing industry, especially for the period from 1996 to 1999. In spite of the different methodological grounds of ICI and CROLEI, they are mutually highly correlated (in the same period), as well as with the industrial production (with the two quarter lead). Our interest in this paper was to track the industrial production changes direction as a referent series because ICI is derived from qualitative surveys based on judgments and expectations of economical units. Some results of the correlation analyses in Croatia, confirm these conclusions. The period 1996 – 2007 was divided into three sub-periods. It was noticeable that ICI and CROLEI were mostly correlated with the industrial production as a reference series during the first sub-period (1996 – 1999). The correlation is becoming weaker in the next sub-period, whereas it is weakest in the third sub-period (2004 – 2007). They are mutually correlated in the same way as they are correlated with the industrial production. The correlation coefficients between the individual indicators and the industrial production are the highest during the two-quarter precedence of the indicators over the production. They are the highest during the period 1996 – 1999 and then they diminish. This is partly a consequence of the economic instability of the Croatian economy after 2000. One may also notice the need to revise the mentioned indicators, in order to improve their predictive characteristics. This is a very demanding task, because both indicators are calculated according to verified methodologies of international institutes.

Business Survey; Industrial Confidence Indicator (ICI); Croatian Leading Economic Indicator (CROLEI); forecasting; regression analysis.

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