Business Climate Indicator as a Predictor of Croatian Industrial Production

Business and Consumer Surveys (BCS) are one of the most frequently used tools to assess economy’s cyclical behavior. Croatia has been conducting the surveys continually since 1995. Nevertheless, there is still a research niche in the Croatian BCS framework that has not been adequately represented. The Joint Harmonised EU Programme of Business and Consumer Surveys suggests Business Climate Indicator (BCI) as a composite leading indicator of the economy as a whole. In accordance to the EU methodology, this paper examines managers’ qualitative assessments on five important variables related to their economic environment. Using factor analysis one factor was extracted from those five variables, representing the BCI. It’s predictive properties were analyzed with regards to Croatian industrial production using Granger causality test, impulse response and variance decomposition analysis. Results strongly confirm the precedence of BCI to the changes of Croatian industrial production, validating the importance of its introduction and utilization in Croatian economic cycles analysis.