Since June 2013 the Eurogrowth Indicator, calculated by the Euroframe group, has predicted a frail recovery of the Euro Area GDP, after a decline in six consecutive quarters up to the first quarter in 2013. The indicator does not track the development of the GDP very accurately in the winter 2013/2012, indicating a decline that is less deep than the official Eurostat estimates. According to the Indicator, the Euro Area GDP will still decline slightly (-0.1 %) in the second quarter from the previous quarter, but rises by 0.3 per cent from the second to the third quarter. The implied year-to-year growth rates are -1 and -0.75 per cent respectively.
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
The Research Institute of the Finnish Economy, ETLA