FORECASTING THE DIRECTION OF CHANGES IN CROATIA´S INDUSTRIAL PRODUCTION WITH ICI AND CROLEI

Abstract

The Industrial Confidence Indicator (ICI) and the Croatian Leading Economic Indicator (CROLEI) can be used to forecast the
direction of changes (Sosic,I. Cizmesija, M., 2003) in developments of the national economy, especially for the manufacturing
industry.
ICI and CROLEI are two leading indicators calculated on different methodological grounds. In spite of the methodological
differences, they are mutually correlated, and they are also correlated with the industrial production. This means that these
indicators are two very important tools in the manufacturing activity prognostics. The Croatian experience has shown that ICI
correctly predicts the direction of changes in the industrial production with a lead of one or two quarters (quarterly data) and
CROLEI with a lead of about six months (monthly data). Some results of correlation analysis in Croatia confirm these
conclusions3. A more refined and more reliable statistical analysis of forecasting results is restricted, since series of values of
survey variables are short. Empirical modifications are conducted to make a comparison of the two indicators. Monthly values of
CROLEI are expressed as quarterly data, in order to align it with ICI, which is based on quarterly surveys. Industrial production is
expressed as percentage rate of the industrial production volume change (a rate of change in the current quarter over the same
quarter in the previous year).
One could recently notice that the prognostic features of the mentioned indicators are no longer satisfying as in the first part of the
observed period (1996 – 1999). It is necessary to conduct revisions of the mentioned indicators with the goal to improve the new
prediction characteristics.