Euro Growth Indicator

Euro Growth Indicator December 2015


Quarter 2014 :02 2014 :03 2014 :04 2015 :01 2015 :02 2015 :03 2015 :04 2016:01
Euro Growth Indicator 1.2 0.7 0.8 1.2 1.8 1.9 1.8 1.8
Eurostat 0.7 0.8 0.9 1.2 1.5 1.6    



Euro area growth continues strong

by Paavo Suni

ETLA Helsinki

on December 3rd, 2015

Euro area growth is expected to be strong in the winter quarters 2015-2016, according to the EUROGROWTH Indicator calculated by the Euroframe group in December 2015. The Indicator points to 0.7 per cent growth for the fourth quarter of 2015, which is unchanged from the previous November estimate. The first estimate for the first quarter growth in 2016 is a bit slower at 0.5 per cent. In year-on-year terms, the growth rates for the two forecast quarters are both 1.8 per cent, which would be the strongest growth since the summer of 2011. The estimated quarter-to-quarter growth would extend the current 10-quarter-long stretch of uninterrupted albeit moderate growth to three years. The Indicator has already shown robust growth in the third quarter of 2015, in fact, twice as fast growth as the preliminary 0.3 per cent figure from Eurostat, suggesting some scope for upward revision of the estimate.

The improving outlook forecast by the EUROGROWTH indicator is broad-based with similar drivers to the November estimation. Contribution from construction, which affects the indicator with a lag of more than one year, turned to support growth last autumn and is expected to strengthen during the winter. The impact of the depreciation of the euro vis-à-vis the USD since spring 2014 till April 2015, which affects the indicator positively with a lag of two quarters, peaked in the third quarter and will reduce quickly in the autumn and the winter. The rather strong impact of consumer confidence, which affects the indicator with a lag of one quarter, is slowly diminishing, although still supported by low energy prices and an improvement in the labour markets. Industrial survey data that contributes to the indicator coincidentally is still robust during the autumn of this year, but is forecast to lose some of its momentum early next year.

All in all, the EUROGROWTH indicator predicts solid growth for the Euro area. The rather strong growth estimates are supported by an expected further alleviation of already loose monetary policy by the ECB, while many other factors continue to support robust growth. Low interest rates, weaker euro and continuing low energy prices have stabilised the euro area economy and continue to provide positive tail winds for the time being.  The tragic terrorist attack in Paris in November does not seem to have affected the sentiment of economic agents, though due to the timing of data collection the most recent surveys may not have captured the full impact.

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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