Euro Growth Indicator December 2014
|Quarter||2013 :02||2013 :03||2013 :04||2014 :01||2014 :02||2014 :03||2014 :04||2015:01|
|Euro Growth Indicator||-0.7||-0.1||0.4||1.3||1.2||0.9||0.9||0.9|
Near-term outlook for the euro area has brightened up a bit
by Klaus-Jürgen Gern
on December 10th, 2014
According to the December EUROGROWTH indicator, growth in the euro area will increase slightly to 0.3 per cent in the final quarter of 2014 and in the first quarter of 2015, from the slow pace of growth of 0.1 and 0.2 per cent, respectively, realised in the two quarters before. The indicator result for the fourth quarter inched up by 0.1 percentage point from the November estimation, and the first estimation for the first quarter 2015 confirmed this modest upward momentum. On a year-on-year basis, the expansion path would stabilise at 0.9 per cent after having decelerated over summer from a rate of growth of 1.1 per cent seen in 2014Q1.
The moderate improvement in the fourth quarter is mainly due to the fact that the surveys signal a less unfavourable situation in the industrial sector. In the first quarter 2015, the substantial devaluation of the euro vis-à-vis the US dollar that started around the middle of this year is beginning to impact positively on the indicator result. By contrast, the household sentiment indicator’s positive contribution to growth has diminished somewhat in both quarters compared to the recent past. Despite the fact that the construction surveys have recently improved, the current contribution of this element to the indicator remains negative because construction surveys affect growth estimates of the EUROFRAME indicator with a long lag of more than one year and construction surveys were deteriorating towards the end of 2013.
All in all, the EUROFRAME indicator suggests that the euro area economy will continue to expand and that the risks of slipping into the third recession in five years have diminished. However, the upward momentum remains modest and the economy still looks fragile. While a number of negative external factors, including the continued tensions associated with the crisis in Ukraine, remain in place, the external environment increasingly also entails supporting elements, such as a substantially reduced oil price and a weaker euro exchange rate. The ECB has announced new measures to raise liquidity and repeatedly confirmed its determination to employ additional tools of monetary easing if deflationary tendencies were to intensify. These assertions may not only have contributed to the lowering of the external value of the euro but also pushed up prices for bonds and equities in the financial markets, which should be a supporting factor also for growth in the real economy.
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.