Euro Growth Indicator November 2016
|Quarter||2015 :01||2015 :02||2015 :03||2015 :04||2016 :01||2016 :02||2016 :03||2016:04|
|Euro Growth Indicator||1.5||2.3||2.4||2.2||1.5||1.8||1.7||1.8|
Euro Growth Indicator shows a rather strong fourth quarter for the Euro Area
by Markku Lehmus
on November 7th, 2016
The Euro Growth Indicator, calculated by the Euroframe group in November 2016, suggests that euro area GDP growth will accelerate in the fourth quarter of 2016. The acceleration is manifested both in comparison to the third quarter growth and to the previous estimate calculated in October. According to the indicator, quarter-on-quarter GDP growth in the euro area would accelerate to 0.6 per cent in the fourth quarter, up by 0.1 percentage points from the October’s indicator value. This implies a year-on-year growth rate of 1.8 per cent, a relatively good number when compared to the recent years’ performance of the monetary area.
For the third quarter the Indicator suggests a quarterly growth of 0.45 per cent, giving a more optimistic figure than the flash estimate produced by Eurostat, which was 0.3 per cent in quarter-on-quarter terms. The growth rate of 0.45 suggested by the Indicator equals the Euro Growth Indicator calculated in October. This denotes 1.7 per cent annual GDP growth for the third quarter.
The acceleration of GDP growth in the fourth quarter mainly stems from the improvement of economic sentiment in the industrial sector, a fact that was also prevalent last month. The household and construction surveys also contribute positively to the Indicator, albeit rather modestly. By contrast, the USD-euro real exchange rate contributes negatively to Indicator’s estimate for the fourth quarter GDP growth.
All in all, the November Indicator still seems relatively immune – or only very little affected – to uncertainty caused by the Brexit vote. The third and the fourth quarter GDP growth implied by the Euro Growth Indicator are estimated to remain stable and relatively strong, encouraged by the good sentiment in the industrial sector.
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.