Euro Growth Indicator

Euro Growth Indicator March 2018



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



Euro area GDP expected to grow by 0.6 per cent in the first quarter of 2018

by Markku Lehmus

ETLA Helsinki

on March 6th, 2018

The Euro Growth Indicator, calculated by the Euroframe group in March 2018, suggests that euro area GDP growth will remain strong during first quarter of 2018. According to the Indicator, quarter-on-quarter GDP growth in the euro area would be 0.6 per cent in the first quarter. This implies that the quarter-on-quarter growth rate in first quarter would be as good as it was in the last quarter of 2017, according to the flash estimate produced by Eurostat. Also, the Euro Growth Indicator implies that the year-on-year growth rate would be 2.7 per cent in the first quarter of 2018, again a growth rate which is very close to the Eurostat’s flash estimate for growth in the last quarter of 2017.

The indicator also suggests that euro area growth would slow down slightly in the second quarter of 2018 with an estimated quarterly growth rate of 0.4 per cent, which would convert into a 2.4 per cent year-on-year GDP growth.

The robust GDP growth in the first quarter of 2018 stems from a combination of positive sentiment factors: sentiments in the construction sector, industrial sector and household sector all contribute positively to the indicator’s estimate. On the other hand, the real euro per dollar exchange rate contributes negatively to the first quarter indicator’s value.

The slowdown of the euro area growth in the second quarter is mostly due to a weaker economic sentiment in the industrial sector. Also, the sentiments in the household sector and the real euro per dollar exchange rate contribute slightly negatively to the second quarter indicator value. However, the economic sentiment in the construction sector continues to give a positive contribution to the indicator value.

The Euro Growth Indicator was optimistic about euro area GDP growth for the last quarter of 2017. For the first quarter of 2018, the indicator suggests growth which is very close to the pace of growth in the previous quarter, implied by the flash estimate published by Eurostat. The Euro Growth indicator suggests that euro area growth will slow down in the second quarter of 2018, based on weakened sentiment in the industrial sector from business survey data released at the end of February.




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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