Euro Growth Indicator

Euro Growth Indicator January 2018

 

 

Quarter 2016 :02 2016 :03 2016 :04 2017 :01 2017 :02 2017 :03 2017 :04 2018:01
Euro Growth Indicator 1.9 1.8 2.0 2.1 2.4 2.7 2.9 2.9
Eurostat 1.8 1.7 1.9 2.1 2.4 2.6    

 

 

Euro area economy enters 2018 with robust growth

by Klaus-Jürgen Gern

IfW Kiel

on January 10th, 2018

Growth in the euro area has been strong in the last quarter of 2017, and the expansion is expected to remain robust in the first months of 2018, according to the January Euro Growth Indicator calculated by the EUROFRAME group of economic research institutes. GDP is forecast to grow by 0.9 per cent in fourth quarter of 2017, the highest rate of growth in seven years. The Indicator estimate for the fourth quarter is largely unchanged from December, whereas the estimate for the first quarter 2018 has been revised upwards by 0.1 percentage point to 0.6 percent, suggesting that economic growth is moderating only modestly in the beginning of the new year. On a year-over-year basis, growth would accelerate to 2.9 per cent in both quarters, up from 2.1 percent in the first quarter of last year and 2.6 percent in the current Eurostat estimate for the third quarter.

The high growth in the fourth quarter is broad based, with bullish sentiment in the industrial sector contributing strongly, but also significant contributions from a more positive household sentiment, which enters the indicator with a lag of 3 months, and construction survey results, which enter the indicator with a long lag of five quarters. While positive contributions from industry and households are decelerating in the first quarter estimate, construction is continuing to pushing the indicator up. The real euro/dollar exchange rate (lagged by 6 months) is having a moderate negative impact in both quarters as a result of the appreciation in the course of last year.

All in all, the January 2018 Euro Growth Indicator suggests that the economic upturn in the euro area remains on track, with strong growth towards the end of the year and GDP expected to continue to outpace potential growth in the euro area in the coming months.

 

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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