Euro Growth Indicator November 2017
|Quarter||2016 :01||2016 :02||2016 :03||2016 :04||2017 :01||2017 :02||2017 :03||2017:04|
|Euro Growth Indicator||1.6||1.9||1.7||2.0||2.1||2.4||2.6||2.7|
Euro area economy expected to accelerate further in the fourth quarter 2017
by Catherine Mathieu
on November 6th, 2017
According to the preliminary flash estimate released by EUROSTAT on 31 October, euro area GDP grew by 0.6 percent in the third quarter of 2017. This is slightly below the estimate of 0.7 percent produced by the Euro Growth Indicator calculated by the EUROFRAME group of economic research institutes. According to the Euro Growth Indicator’s latest estimate, euro area growth will further accelerate to 0.9 percent in the fourth quarter.
This estimate is 0.2 percent higher than last month estimate. The reason for the upward revision comes from a more buoyant industrial sentiment, as signalled by survey data results for October. The industrial confidence indicator has now reached its previous peaks from early 2006 and early 2010, when euro area quarterly GDP grew by close to 1 percent.
While the appreciation of the euro-dollar exchange rate since the beginning of the year (which plays with a two-quarter lag in the indicator) has started to reduce marginally GDP growth since the third quarter, the households’ sentiment (which plays with a one-quarter lag in the indicator) and to a lesser extent the sentiment in the construction sector (which plays with a five quarter lag) have a positive contribution to growth.
Although one has to be cautious as the Euro Growth Indicator relies mainly on survey data available up to October, euro area GDP growth momentum seems likely to remain robust until the end of the year. On a year-over-year basis this would translate into GDP growing by 2.7 percent in the fourth quarter, up from 2.5 percent in the third quarter according to the latest Eurostat estimate.
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.