Euro Growth Indicator May 2017
|Quarter||2015 :03||2015 :04||2016 :01||2016 :02||2016 :03||2016 :04||2017 :01||2017:02|
|Euro Growth Indicator||2.4||2.2||1.5||1.8||1.8||2.0||2.0||2.1|
Euro area growth on a 2% annual growth
by Catherine Mathieu
on May 2nd, 2017
According to the latest estimate of the Euro Growth Indicator calculated by EUROFRAME, the euro area will grow by 0.7 per cent growth in the first quarter 2017 and by 0.4 per cent in the second quarter. For the last quarter of 2016, our indicator based mainly on business surveys data has suggested stronger GDP growth than in the preliminary EUROSTAT release. This could also be the case with the first preliminary estimate of the first quarter of 2017 to be released by EUROSTAT on May 3. As concerns the second quarter of 2017, the Euro Growth Indicator’s estimates have been revised very marginally upwards from early April (by 0.03 percentage point). On a y-o-y basis GDP growth would be close to 2 per cent in Q1 and Q2.
The slowdown expected in the second quarter comes from a deterioration of the sentiment in the industrial sector, which has a slightly negative contribution to GDP growth following two quarters of substantial positive contribution. Construction survey results, which enter the indicator with a five-quarter lag, also contribute to reduce slightly GDP growth. The contribution of household surveys will remain close to zero, whereas the contribution from the real euro-dollar exchange rate, which plays with a two-quarter lag, will be slightly positive.
Business survey data suggest that euro area growth will decelerate in the second quarter, in a context of still high political uncertainties across Europe and more widely at the world level.
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.