Euro Growth Indicator February 2018
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Euro area GDP expected to grow by 0.6 per cent in the first quarter of 2018
by Catherine Mathieu
on February 1st, 2018
According to the Euro Growth Indicator calculated by the EUROFRAME group of economic research institutes, euro area GDP will grow by 0.6 per cent in the first quarter of 2018. This would be similar to the preliminary flash estimate released by EUROSTAT for the last quarter of 2017.
The Euro Growth Indicator’s latest estimate for euro area GDP growth in the first quarter of 2018 is unchanged as compared to last month, at 0.6 per cent. However, the preliminary flash estimate released by EUROSTAT for the last quarter of 2017 is well below the indicator’s estimate, which suggested an acceleration of GDP growth to 0.9 per cent, reflecting the strength of industrial and households’ confidence in survey data. Indeed, Euro area industrial confidence reached levels last December well above the previous peaks from early 2006 and early 2010, when euro area quarterly GDP grew by close to 1 per cent. Households’ confidence also reached levels well above the pre-2008 crisis levels last December. It may be noticed that euro area GDP growth was revised upwards by 0.1 per cent for the third quarter of 2017 according to latest EUROSTAT figures (from 0.6 per cent to 0.7 per cent), bringing official data closer to GDP estimates produced based on survey data, which could also be the case in the coming months for the last quarter of 2017.
In the first quarter of 2018, the appreciation of the euro vis-à-vis the US dollar since the beginning of 2017 (which plays with a two-quarter lag in the indicator) will contribute to marginally reduce GDP growth, while confidence in the construction sector (which plays with a five quarter lag) will continue to have a positive contribution to growth. Industrial and household’s confidence will have a less buoyant contribution to GDP growth than in the fourth quarter of 2017, leading to a GDP growth of 0.6 per cent.
On a year-over-year basis GDP is expected to grow by 2.7 per cent in the first quarter of 2018, unchanged from the last quarter of 2017.
Disclaimer: With EUROSTAT having shortened its publication delays for the preliminary flash estimates (now released at t+30), the Euro Growth Indicator calculated by EUROFRAME this month provides a one-quarter ahead forecast only.
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.