Euro Growth Indicator

Euro Growth Indicator August 2018



Quarter 2016 :04 2017 :01 2017 :02 2017 :03 2017 :04 2018:01 2018 :02 2018:03
Euro Growth Indicator 1.9 2.1 2.5 2.8 3.0 2.7 2.2 1.8
Eurostat 2.0 2.0 2.5 2.9 2.8 2.5 2.1  



More moderate growth in the euro area, but steady so far

by Catherine Mathieu

OFCE Paris

on July 31st, 2018

Euro area GDP is expected to grow by around 0.4 per cent per quarter in the third quarter of 2018, according to the latest estimates of the Euro Growth Indicator calculated by the EUROFRAME group of economic research institutes. Euro area GDP would thus continue to grow at a similar pace as in the second quarter of 2018 (+0.34 per cent according to the preliminary flash estimate released by Eurostat on 31 July). On a year-over-year basis, euro area GDP growth would decelerate from 2.1 per cent in the second quarter of 2018, to 1.8 per cent in the third quarter.

According to the indicator, euro area GDP growth will remain roughly unchanged in the third quarter of 2018 as compared to the second quarter.  This would however result from the combination of two opposite movements. On the one hand, the continuation of the deterioration of sentiment in the industrial sector, which plays coincidentally in the indicator, and a negative contribution of the euro exchange rate vis-à-vis the US dollar (which plays with a two-quarter lag in the indicator) will reduce GDP growth in the third quarter while, on the other hand, confidence in the construction sector (which plays with a five quarter lag) will contribute to increase GDP growth, together with, although to a lesser extent, households’ confidence (which plays with a one-quarter lag in the indicator).

Euro area GDP growth has clearly decelerated from its previous peak of 2.8 per cent on year-over-year basis reached in the third quarter of 2017 according to EUROSTAT figures. On the whole, business and consumer survey data available today, together with the rise of geopolitical risks in recent months already showing in terms of higher oil prices for instance, would rather tend to suggest a slight deceleration of GDP growth in the second half of 2018.

Disclaimer: With EUROSTAT having shortened its publication delays for the preliminary flash estimates (released at t+30), the Euro Growth Indicator calculated by EUROFRAME this month provides a one-quarter ahead forecast only.

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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