The improvement comes mainly from the sentiment indicators which have shown increasing strength in recent months. Especially firms in manufacturing have become more optimistic about the future. The positive swing of the household survey – here the confidence has now a smaller negative contribution to the growth estimate – was also substantial. It may be that the situation on the labor market will stabilize in the near future, even though unemployment will remain probably at a very high level for some time. Other factors such as the real exchange rate and the results of the construction survey only showed minor changes.

The results of the Eurogrowth indicator are somewhat more optimistic than the consensus forecast for this year. According to the indicator, real GDP may stagnate for the year as a whole, whereas many other forecasts still imply a small decline. However, some caution is warranted given the uncertainty of model estimates especially in period of a cyclical turnaround. In addition, the experience in recent years shows that a setback may occur should the crisis in the euro area escalate again. Nobody can know if and when this will happen or what the trigger may be. Since the crisis is far from over, we should not expect that the recovery is already on safe grounds. On top of that, the outlook for several emerging economies has become more uncertain recently, so there may even be a negative shock from abroad.

September 11, 2013
Joachim Scheide
Kiel Institute for the World Economy

The weak turn for the better is due to improving industrial confidence. Household and construction surveys still point to a continuing stagnation. The appreciation of euro vis-à-vis the USD in last winter depresses estimates for the second and third quarter as exchange rate affects the indicator with a lag of two quarters.

The estimated improvement of industrial managers’ expectations, on which the predicted end of the recession is based, is in line with the recent general improvement of survey indicators, but is very vulnerable to negative news, e.g. on development of the euro crisis. If the growth would continue in the fourth quarter at the rate predicted for the third quarter, the GDP growth for the full year 2013 would amount to the current consensus estimate of -0.6 per cent.

August 8, 2013
Paavo Suni
The Research Institute of the Finnish Economy, ETLA

Nevertheless, there are some indications that the worst may be over in terms of the downturn. Especially the sentiment has brightened up, especially in industry. However, this improvement is very small, and the level of the indicator is still too low to predict a clear upturn of the economy. While the construction survey continues to signal more or less stagnation only, households remain cautious. This is not surprising given the labor market situation. A slight deterioration is to be expected from the exchange rate since the euro has been rather strong against the US-dollar.

The results of the Eurogrowth indicator are in line with the consensus forecast of a very modest recovery. However, it is still true that hard facts concerning new orders, production and sales are still too weak to support the forecast that the turnaround of the euro area economy is imminent. And it is probably also true that the risks for the outlook are mainly on the downside. The outlook for economic policy remains uncertain which has a negative effect especially on the investment plans of firms.

June 11, 2013
Joachim Scheide
Kiel Institute for the World Economy

The improvement in the near-term outlook comes from the industry survey which has shown a strong upturn since November 2012. As a consequence, its contribution turned from negative to positive in the first quarter of 2013. However, the fall back of the industrial survey in March points out that some caution is warranted given confidence indicators may be somewhat volatile while reflecting sentiments about the financial market situation or developments in the euro area crisis, in addition to current business conditions. The other components of the indicator, construction and household surveys, are still rather weak and do not contribute to the expected positive growth. The lagged effect of the decline in the euro/dollar exchange rate up to mid-2012 still supports growth in the first quarter of this year, but the contribution will turn negative in the next quarter reflecting the appreciation of the euro in the second half of 2012.

All in all, it is too early to say that the euro area has troughed in the last quarter of last year. Experience has shown that indicators may not be very precise in predicting the exact timing of a turnaround. Furthermore, if the fears of the euro zone’s breakup receded thanks to the bail-out of Greece and the ECB’s OMT program, the outlook for fiscal balances is still uncertain although drastic budget consolidations will be renewed in most member countries, which means continuing negative impacts on activity for the euro area as a whole.

May 10, 2013
Hervé Péléraux
French Economic Observatory

The April indicator forecasts are practically unchanged from the March estimates. Only the second quarter forecast has been slightly downward revised, -0.1 percentage point. The improvement in the near-term outlook comes from the industry survey which has shown a strong upturn since November 2012. As a consequence, its contribution turned from negative to positive in the first quarter of 2013. However, the fall back of the industrial survey in March points out that some caution is warranted given confidence indicators may be somewhat volatile while reflecting sentiments about the financial market situation or developments in the euro area crisis, in addition to current business conditions. The other components of the indicator, construction and household surveys, are still rather weak and do not contribute to the expected positive growth. The lagged effect of the decline in the euro/dollar exchange rate up to mid-2012 still supports growth in the first quarter of this year, but the contribution will turn negative in the next quarter reflecting the appreciation of the euro in the second half of 2012.

All in all, it is too early to say that the euro area has troughed in the last quarter of last year. Experience has shown that indicators may not be very precise in predicting the exact timing of a turnaround. Furthermore, if the fears of the euro zone’s breakup receded thanks to the bail-out of Greece and the ECB’s OMT program, the outlook for fiscal balances is still uncertain although drastic budget consolidations will be renewed in most member countries, which means continuing negative impacts on activity for the euro area as a whole.

April 11, 2013
Hervé Péléraux
French Economic Observatory

However, some caution is warranted because the positive outlook so far depends mainly on the improvement of sentiment indicators, while the hard facts concerning new orders, production and sales are still too weak to support the forecast that the turnaround is already here. And it has to be kept in mind that forecast models may not be very precise when it comes to predict the exact timing of a turnaround.

Among the sentiment indicators, the good news comes only from the industry survey which has shown a substantial upturn since the end of last year. The other indicators considered in the model (construction and household surveys) however, have remained rather weak and do not contribute to the expected positive growth. A slight deterioration is to be expected from the exchange rate since the euro has been rather strong against the US-dollar.

The improvement of the survey is probably a reflection of the relief on financial markets concerning the future of the monetary union. A breakup like it was discussed a few months ago is not in the headlines anymore, and bond yields and volatilities have come down quite a bit. But certainly it is too early to say that the worst is over. The outlook for fiscal balances is uncertain, and it is also unclear when growth will return in the countries in a crisis. Nevertheless, according the Eurogrowth indicator, there is some hope that GDP will, at least, show some small improvement for the euro area as a whole.

March 13, 2013
Joachim Scheide
Kiel Institute for the World Economy

The slight rebound in the outlook from January stems from a small rise in the contribution of construction confidence. The real exchange rate of euro vis-à-vis the US dollar, which affects the indicator with a lag of two quarters, has contributed positively to the Euro Area GDP growth for five consecutive quarters already. The effect of the recent strengthening of the euro is not yet visible, but it will – if permanent – begin to reduce the contribution in coming quarters. The turnaround in stock prices in early summer 2012 with some set-back in the autumn has supported the indicator especially in the reviewed quarters. On the other hand, the contributions of industrial and household confidence still continue to depress growth predictions on the quarterly basis, although the recently improved monthly surveys point to change for the better.

The predicted end of the recession followed by a fragile recovery is very vulnerable to changes in economic agents’ expectations. Deepening political problems in the Euro Area crisis countries could mark a turn for the worse by depressing industrial and household as well as dent the rise in stock prices also in other countries. The encouraging stabilization of government bond markets since last August owes much to the announcement of the OMT programme by the ECB and the coincident progress in plans on banking inspection and resolution. Needless to say any setbacks in the implementation of these plans could easily change expectations for the worse and depress growth.

February 4, 2013
Paavo Suni
The Research Institute of the Finnish Economy, ETLA

The contribution of the industry survey moves up a little bit, but it is still negative so that no positive impulse to GDP growth is expected from this sector in the near term. The construction survey is rather neutral. Stock prices have recovered from their trough in late Spring of last year, driving up the growth rate, while the contribution of the real exchange rate of the euro against the dollar has been slightly positive for five quarters. On the negative side, the households are still quite pessimistic so that the contribution of the confidence indicator further worsens from already very low levels.

It is obviously too early to say that the crisis is over, but some very preliminary evidences suggest that the bulk of the negative developments the Euro area experienced for one year would come to an end. The key role played by the European Central Bank last Summer – the announcement of the Outright Monetary Transactions – has probably been a major contribution to the solution of the problem by getting the financial system rid of the sovereign debt risk. However, the growth path in the euro zone still suffers the drastic budget consolidation implemented by country members. As long as fiscal policies in the Euro area will be constrained by the reduction of deficits and debt ratio, the restrictive effects of fiscal tightening will not raise the near term outlooks.

January 11, 2013
Hervé Péléraux
OFCE