Euro Growth Indicator

Euro Growth Indicator March 2019



Quarter 2017 :03 2017 :04 2018 :01 2018:02 2018 :03 2018:04 2019 :01 2019:02
Euro Growth Indicator 2.8 2.9 2.5 2.2 1.9 1.3 1.0 0.7
Eurostat 2.8 2.7 2.4 2.2 1.6 1.2    



EUROGROWTH Indicator shows only modest growth for the next two quarters

by Markku Lehmus

ETLA Helsinki

on March 1st, 2019

The EUROGROWTH Indicator, calculated by the EUROFRAME group at the end of February, suggests that euro area GDP growth will rise by close to 0.3 per cent in the first quarter of 2019. This would follow a 0.2 per cent quarterly growth rate in the fourth quarter of last year, according to the estimate produced by Eurostat. The indicator’s estimate implies that the year-on-year growth rate would be 1.0 per cent in the first quarter of 2019, a growth rate which is 0.1 percentage points slower than the Eurostat’s estimate for growth in the fourth quarter of 2018.The indicator suggests that euro area growth will, however, slow down again in the second quarter of 2019, implying a quarterly growth rate of slightly above zero, 0.1. This would convert into a 0.7 per cent year-on-year GDP growth, the weakest yearly growth rate in the monetary area since 2013.

GDP growth in the first quarter of 2019 is supported by sentiments in the construction sector and household sector. The real euro per dollar exchange rate contributes positively to the first quarter indicator’s value too. However, the sentiment in the industrial sector contributes strongly negatively to the first quarter indicator’s value.

The weaker GDP growth in the second quarter of 2019 stems from negative contributions of sentiments in the household sector and industrial sector. The real euro per dollar exchange rate together with sentiment in the construction sector contribute slightly positively to the second quarter indicator’s value.

All in all, according to the Indicator, euro area growth will be dragged down by activity in the industrial sector in the first two quarters of this year. While the indicator suggests GDP will keep on growing at close to 0.3 per cent in the first quarter, it also suggests that growth will decelerate in the second quarter at close to nil. However, the deterioration of the business climate in the industrial sector in recent months, reflects high uncertainties in the world economy (such as trade disputes between the US and China, Brexit negotiations); and transitory factors such as new emissions tests that dampened car production, especially in Germany), which may possibly lose strength in the coming months. Hence the second quarter growth rate estimate is at this stage to be taken with caution.



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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