Euro Growth Indicator

Euro Growth IndicatorJune 2017



Quarter 2015 :04 2016 :01 2016 :02 2016 :03 2016 :04 2017 :01 2017 :02 2017:03
Euro Growth Indicator 2.2 1.5 1.8 1.8 2.0 1.9 2.1 2.0
Eurostat 2.0 1.7 1.6 1.8 1.8 1.7    



Euro Growth Indicator shows continued strong growth in the second quarter of 2017

by Markku Lehmus

ETLA Helsinki

on June 2nd, 2017

The Euro Growth Indicator, calculated by the Euroframe group in June 2017, suggests that growth will remain firm in the second quarter of 2017. According to the indicator, quarter-on-quarter GDP growth in the euro area would be 0.66 per cent in the second quarter of 2017. Thus, quarter-on-quarter GDP growth in the euro area would accelerate from the first quarter of 2017, when it was 0.5 according to the flash estimate produced by Eurostat. Consequently, year-on-year growth rate in the euro area would amount to 2.07 per cent in the second quarter of 2017, according to the Indicator.

The Q2 estimate has been revised quite substantially from last month, but this is mainly due to an error in last month's calculation (it should have been 0.75 instead of 0.47 announced then).

At the same time, the Euro Growth Indicator suggests that quarterly growth in the euro area will slow down to 0.31 in the third quarter of 2017. This would, however, be enough to generate 1.95 per cent annual GDP growth in the third quarter in the monetary area.

The robust GDP growth in the second quarter mainly stems from an improvement in the economic sentiment of the industrial sector. This factor has constantly raised the indicator value during last months, thus contributing to the improving economic outlook in the euro area. Also the USD-euro real exchange rate and sentiment in household sector contributed modestly positively to the indicator value for the second quarter. On the other hand, a slightly weakened sentiment in the construction sector, which enters the estimation with a long lag of 5 quarter, fractionally reduced the indicator value. The slowdown of GDP growth in the third quarter mainly stems from a decrease in the economic sentiment of the industrial sector, and to a small extent, a slightly weakened sentiment among households.

All in all, the Euro Growth Indicator suggests a quarterly growth of 0.7 per cent for the second quarter of 2017 in the euro area, indicating that GDP growth would accelerate from the estimated growth of the first quarter of 2017. The Indicator also suggests that euro area GDP growth would slightly slow down next quarter, to a quarterly rate of 0.3 per Cent.





Indicator methodology

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.


For any further information, please contact Hervé Péléraux
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