Euro Growth Indicator May 2019
|Quarter||2017 :03||2017 :04||2018 :01||2018:02||2018 :03||2018:04||2019 :01||2019:02|
|Euro Growth Indicator||2.8||2.9||2.5||2.2||1.9||1.3||1.1||0.7|
Euro area growth falters again in spring
by Klaus-Jürgen Gern
on May 7th, 2019
In the first quarter of 2019, GDP growth in the euro area has picked up to 0.4 per cent according to the flash estimate of EUROSTAT, and the year on year growth rate has stabilised at 1.2 per cent. The improvement in growth is, however, likely to be temporary, according to the May Euro Growth Indicator calculated by the EUROFRAME group of economic research institutes. The indicator estimate for the second quarter is suggesting a stagnant economy, reflecting mainly a continued significant negative contribution of sentiment in the industrial sector and a pronounced deterioration of consumer confidence (lagged by one quarter). The year-on-year growth growth rate would slip to 0.7 per cent in Q2, down from 1.2 per cent in Q1.
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.