Euro Growth Indicator

Euro Growth Indicator September 2018



Quarter 2017 :01 2017 :02 2017 :03 2017 :04 2018 :01 2018:02 2018 :03 2018:04
Euro Growth Indicator 2.1 2.5 2.8 3.0 2.7 2.2 1.9 1.5
Eurostat 2.0 2.5 2.8 2.8 2.5 2.2    



Euro area growth to slow down further towards the end of the year

by Markku Lehmus

ETLA Helsinki

on September 1st, 2018

The Euro Growth Indicator, calculated by the Euroframe group in September 2018, suggests that euro area GDP growth in the third quarter of 2018 is in line with the growth estimates produced by Eurostatrate for the first and second quarters of the year. According to the Indicator, quarter-on-quarter GDP growth in the euro area would be 0.4 per cent in the third quarter. This would convert into a 1.9 per cent year-on-year growth rate, a growth rate which is 0.3 percentage points below  Eurostat’s growth estimate for the second quarter of 2018. The first indicator estimate for the fourth quarter suggests that euro area growth will slow down slightly towards the end of the year, implying a quarterly growth rate of 0.3 per cent for the final quarter. This would convert into a 1.5 per cent year-on-year GDP growth, a growth rate well below the numbers seen during last two years.

The moderate GDP growth in the third quarter of 2018 is positively contributed by a good sentiment in the construction sector, whereas industrial sector contributes negatively to the indicator’s estimate. Sentiment in the construction sector affects the indicator value with a lag. The real euro per dollar exchange rate contributes slightly negatively but sentiment in the household sector slightly positively to the third quarter indicator’s value.

The euro area GDP growth in the fourth quarter is weighed down by a weakened sentiment in the industrial sector. By contrast sentiment in both the construction and the household sector together with the real euro per dollar exchange rate slightly improve the fourth quarter indicator’s value.

All in all, the September Euro Growth indicator suggests that euro area growth will keep its pace in the third quarter of 2018, implying a quarterly growth rate of 0.4 per cent. According to the indicator, euro area growth will slow down to a quarterly rate of 0.3 in the last quarter of 2018.

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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