Euro Growth Indicator

Euro Growth Indicator August 2019



Quarter 2017 :04 2018 :01 2018 :02 2018:03 2018 :04 2019:01 2019 :02 2019:03
Euro Growth Indicator 2.9 2.6 2.3 1.9 1.3 1.1 0.9 1.0
Eurostat 2.8 2.5 2.2 1.7 1.2 1.2 1,1  



Euro area GDP growth expected to remain weak in the third quarter of 2019

by Catherine Mathieu

OFCE Paris

on August 2nd, 2019

Euro area GDP grew by 0.2 per cent in the second quarter of 2019, according to the preliminary flash estimate released by EUROSTAT on 31 July 2019. This is slightly higher than the 0.1 per cent growth anticipated by the Euro Growth Indicator calculated by the EUROFRAME group of economic research institutes last month.

According to the Euro Growth Indicator, euro area GDP growth would grow by 0.1 per cent only in the third quarter of 2019. Euro area GDP growth will be dragged down by the deterioration of the sentiment in the industrial sector (which plays coincidentally in the indicator), by the deterioration of confidence in the construction sector (which plays with a five quarter lag in the indicator) and to a smaller extent by a higher the euro exchange rate vis-à-vis the US dollar (which plays with a two-quarter lag in the indicator). These effects would be partly offset by an improvement in households’ confidence (which plays with a one-quarter lag in the indicator).

On a year-over-year basis, euro area GDP growth would remain close to a mere 1 per cent in the third quarter of 2019. A number of negative risks continue to weigh on euro area growth prospects in the short term: the deterioration of the world global outlook, among which world trade deceleration in a context of trade disputes between the US and China, and, in Europe, the deterioration of activity in the manufacturing sector, especially sharp in Germany, while political uncertainties around Brexit have recently increased with Boris Johnson’s government being committed to Brexit by 31 October, ‘come what may’.


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.


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