Euro Growth Indicator

Euro Growth Indicator December 2019



Quarter 2018 :02 2018 :03 2018 :04 2019:01 2019 :02 2019:03 2019 :04 2020:01
Euro Growth Indicator 2.3 1.8 1.2 1.2 1.1 1,2 1.1 0.9
Eurostat 2.2 1.6 1.2 1.3 1.2 1.2    



Euro Growth Indicator suggest stable but modest growth for the current and next quarters in the euro area

by Markku Lehmus

ETLA Helsinki

on November 30th, 2019

The Euro Growth Indicator, calculated by the EUROFRAME group in November, suggests that euro area GDP’s quarterly growth rate would be 0.2 per cent in the fourth quarter of 2019. Thus quarterly growth would continue at the same pace as in in the third quarter, which was estimated be 0.2 by Eurostat. The indicator’s estimate implies that the year-on-year growth rate would be 1.2 per cent in the fourth quarter of 2019, a rate which, again, equals the Eurostat’s estimate for a yearly growth in the third quarter of 2019.

The indicator suggests that euro area growth will accelerate slightly in the first quarter of 2020, to a quarterly growth rate of 0.3 per cent. This would convert into a 0.9 per cent year-on-year GDP growth, slightly lower than in the fourth quarter this year. However, the slight acceleration of growth in quarterly terms would be positive news for the euro area.

As in the previous quarters this year, GDP growth in the fourth quarter of 2019 is supported by the sentiment in the construction sector. Also, growth is to some extent sustained by developments in the real euro per dollar exchange rate. In contrast, the sentiment in the industrial sector still drags down the fourth quarter indicator’s value, a development which has characterized the entire year of 2019. The sentiment in the household sector contributes slightly negatively to the fourth quarter’s indicator’s value as well.

In the first quarter of next year GDP growth is supported by the same factors as in the fourth quarter of this year. Thus, growth will be backed by the positive sentiment in the construction sector and by developments in the real euro per dollar exchange rate. The sentiments in the industrial and household sector continue to contribute negatively to the first quarter indicator’s value, yet the strongly negative effect coming from the industrial sector sentiment is declining . This would explain most of the acceleration in GDP in the first quarter of next year.

All in all, the Indicator suggests that euro area growth stays positive albeit modest in the current and next quarters.


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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