Euro Growth Indicator June 2018
|Quarter||2016 :04||2017 :01||2017 :02||2017 :03||2017 :04||2018:01||2018 :02||2018:03|
|Euro Growth Indicator||2.0||2.1||2.4||2.8||3.0||2.7||2.2||1.9|
Euro Growth Indicator shows stable growth in the second and third quarter of 2018
by Markku Lehmus
on June 1st, 2018
The Euro Growth Indicator, calculated by the Euroframe group in June 2018, suggests that euro area GDP growth in the second quarter of 2018 is in line with the growth rate seen in the first quarter of the year according to the flash estimate produced by Eurostat. According to the Indicator, quarter-on-quarter GDP growth in the euro area would be 0.4 per cent in the second quarter. This implies that the year-on-year growth rate would be 2.2 per cent in the second quarter of 2018, a growth rate which is 0.3 percentage points slower than the Eurostat’s flash estimate for growth in the first quarter of 2018.
The indicator suggests that euro area growth will keep up its momentum in the third quarter of 2018 as well, implying a quarterly growth rate of 0.4 per cent for that quarter too. This would convert into a 1.9 per cent year-on-year GDP growth.
The decent GDP growth in the second quarter of 2018 stems from a positive sentiment in the construction sector, whereas industrial sector and household sector contribute negatively to the indicator’s estimate. The real euro per dollar exchange rate contributes slightly negatively to the second quarter indicator’s value as well.
Similarly, the euro area GDP growth in the third quarter is mostly due to a good economic sentiment in the construction sector. The sentiment in the household sector contributes positively to the indicator’s third quarter estimate too. On the other hand, the sentiments in the industrial sector and the real euro per dollar exchange rate contribute negatively to the third quarter indicator’s estimate.
The Euro Growth Indicator was slightly optimistic about euro area GDP growth for the first quarter of 2018. However, the Euro Growth indicator suggests that euro area growth will keep up its pace in the second and third quarter of 2018, implying a quarterly growth rate of 0.4 per cent for both.
The Euro Growth indicator forecasts the euro area GDP quarterly growth rate two quarters ahead of official statistics using a bridge regression. Regressors are chosen among survey data and financial data, i.e. series which are rapidly available and not revised. The monthly series are converted to a quarterly basis by averaging their monthly values. Series selection is conducted on an econometric basis starting from the set of monthly business and consumer survey results released by the European Commission: industry, construction, retail trade, services and consumers. From this large dataset, a few series are significant stemming from industry (production trend and expectation), construction (confidence indicator) and households surveys (major purchases). Two financial series are also significant, i.e. the growth rates of the real euro/dollar exchange rate and of a Euro area stock market index.
Some of these regressors are leading by at least two quarters, and may be used as such to forecast GDP growth. Some others are not leading or are leading with a lead which does not suit a two-quarter-ahead forecast horizon. These series have to be forecast, but over a short time-horizon which never exceeds four months. All these forecasts are implemented using monthly autoregressive equations.
The Euro Growth indicator is run each month, soon after the release of business and consumer survey results.