Euro Growth Indicator

Euro Growth Indicator May 2018



Quarter 2016 :03 2016 :04 2017 :01 2017 :02 2017 :03 2017:04 2018 :01 2018:02
Euro Growth Indicator 1.8 2.0 2.1 2.4 2.8 3.0 2.7 2.2
Eurostat 1.7 1.9 2.1 2.4 2.7 2.8 2.5  



Euro area growth will continue to grow at a more moderate pace in the second quarter of 2018

by Catherine Mathieu

OFCE Paris

on May 9st, 2018

Euro area GDP is expected to grow by around 0.4 per cent per quarter in the second 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 grow at a similar pace as in the first quarter of 2018, according to the preliminary flash estimate released in early May by Eurostat for the first quarter of 2018. As compared to last month, the Indicator estimate for the second quarter 2018 is however revised upwards by 0.1percentage point due to the stabilisation in the industrial survey component in April, after two months of decline since the peak reached in early 2018. On a year-over-year basis, euro area GDP growth would decelerate from 2.7 per cent in the first quarter of 2018, to 2.2 per cent in the third quarter.

According to the indicator, GDP growth deceleration in the first half of 2018 results mainly from the deterioration of sentiment in the industrial sector, which plays coincidentally in the indicator. In the second quarter of 2018, a deterioration of households’ confidence, which plays with a one-quarter lag in the indicator, will also contribute to reduce slightly GDP growth. In the second quarter of 2018, the euro exchange rate vis-à-vis the US dollar (which plays with a two-quarter lag in the indicator) will cease to contribute to reduce GDP growth, after two quarters of negative contribution, while confidence in the construction sector (which plays with a five quarter lag) will continue to have a positive contribution to growth.

Euro area GDP growth thus seems to have peaked in the fourth quarter of 2017, at close to 2.8 per cent on year-over-year basis, according to EUROSTAT figures, and business survey data do not currently suggest any rebound of growth in the first 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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