Euro Growth Indicator

Euro Growth Indicator June 2019



Quarter 2017 :04 2018 :01 2018 :02 2018:03 2018 :04 2019:01 2019 :02 2019:03
Euro Growth Indicator 2.9 2.5 2.2 1.9 1.3 1.1 0.9 1.1
Eurostat 2.7 2.4 2.2 1.6 1.2 1.2    



Euro Growth Indicator shows modest but positive growth for the next two quarters

by Markku Lehmus

ETLA Helsinki

on May 31st, 2019

The Euro Growth Indicator, calculated by the EUROFRAME group in May, suggests that euro area GDP growth slows to a quarterly rate of only 0.1 per cent in the second quarter of 2019. This would imply a 0.3 percentage points deceleration from the first quarter’s quarterly growth rate, which was estimated to be 0.4 by the Eurostat. The indicator implies that the year-on-year growth rate would be 0.9 per cent in the second quarter of 2019, a rate which is 0.3 percentage points slower than the EUROSTAT estimate for a yearly growth in the first quarter of 2019.

The indicator suggests that euro area growth will regain some strength in third quarter of 2019, implying a quarterly growth rate of 0.3 for the monetary area. This would convert into a 1.1 per cent year-on-year GDP growth, a slight improvement from the second quarter’s growth rate. If materialized, this would alleviate fears of a further slow-down in growth in the euro area.

The GDP growth in the second quarter of 2019 is supported by the sentiment in the construction sector. Also, growth is sustained by developments in the real euro per dollar exchange rate. Yet the sentiments in the industrial and household sector contribute strongly negatively to the second quarter indicator’s value.

The third quarter’s GDP growth is supported by the same factors that were relevant in the second quarter as well. Thus, growth is given a push by the positive sentiment in the construction sector and developments in the real euro per dollar exchange rate. The sentiments in the industrial and household sector continue to contribute negatively to the third quarter indicator’s value, but their effect is declining.

All in all, the Indicator suggests that euro area growth stays positive in the next two quarters even though particularly the second quarter’s growth is expected to be sluggish. Nevertheless, the Indicator suggests that growth will accelerate in the third quarter to a quarterly rate of 0.3, supported by the sentiment in the construction sector and developments in the real euro per dollar exchange rate combined with a smaller negative contribution stemming from the industrial and household surveys.

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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