by Hervé Péléraux
Observatoire Français des Conjonctures Economiques, Paris
on January 14th, 2010

According to the Eurogrowth indicator, conceived by Euroframe, the GDP growth rate will remain negative during the next two quarters, namely -1.6 % y-o-y in the 4th quarter of 2009 and -0.7 % in the 1st quarter of 2010. On a q-o-q basis (to be taken with caution), these forecasts imply a still positive growth rate in the final quarter of last year and a decline in the beginning of this year. Therefore, the recovery looks still very unstable after the collapse in GDP in the turn of 2008 and 2009. January results do not display any major changes when compared to last month estimates except a slightly 0.1 percentage point upward revision, pushed up by better confidence index releases than expected earlier.

Though the y-o-y growth rate will still be negative, there has been a turnaround in GDP which has been suggested by an upturn in the confidence indexes: the ISM survey in the US industry recovered in January 2009, the EC survey in the euro zone upturned in April (industry) and in June (retail trade). Nevertheless, the rebound of the business climate indicators in Europe has not been strong enough to compensate for their massive drop in the autumn of 2008. Their level is still very low, around their 2001-2003 levels, evidencing that the improvement in the GDP growth is very weak. Industry and retail trade surveys have improved, but their impact on the y-o-y growth rate is still negative.

Better news came from the external side. While strongly upturning, the ISM survey fully recovered from its outstanding trough, suggesting a positive impact of the external demand since 2009Q3. At the same time, the rise in the dollar against the euro stimulated the euro area economy with a positive contribution since 2009Q2, but this effect is about to vanish in early 2010.   

All in all, as it has been said for some months, the huge negative developments in GDP are over, but the recovery does not look very steady. The positive impact of the rebound in the inventory cycle will come to an end. If consumption and investment do not take over from inventories, there is a true risk of a setback while the stimulus by fiscal packages is likely to fade in the course of next year, and central banks may start soon to reduce the liquidity overhang. 

You may find this information in other languages:

• French

The Euro Growth Indicator is calculated by the Observatoire Francais des Conjonctures Economiques (OFCE, Paris) in cooperation with the EUROFRAME group.

The purpose of this leading indicator is to anticipate the development of the GDP in the euro area two quarters ahead of official statistics. The indicator considers surveys from industry and retail sectors, the short term real interest rate (in relation to the GDP growth rate), the real exchange rate of the euro to the dollar and the US ISM index for industry.

Inside

• A new simpler EMU indicator (OFCE, pdf) - [12/2000]
• Methodological Note in English and in French - [07/05/2000]
• Historical Series (OFCE, xls)

For further information, please contact Hervé Péléraux