Weak momentum in Euro Area growth continues in winter 2015

Euro Area growth remains weak in the winter 2014/2015 according to the Eurogrowth Indicator calculated by the Euroframe group in February. The forecast quarter-to-quarter growth rate for the fourth quarter of 2014 is 0.3 per cent, unchanged from the January estimation. The forecast growth rate for the first quarter of 2015 inched up by 0.1 percentage points to 0.4 per cent. The respective year-on-year growth rates were both 0.9 per cent.

A small improvement in the estimated first quarter growth stems from industrial managers’ improved confidence, which affects the Indicator coincidentally. The support is still weak, however. On the other hand, the impact of construction sector confidence, affecting the indicator with a lag of five quarters, has been on the rise since spring 2014.

The growth effect of exchange rates is captured by the USD-euro real exchange rate with a lag of two quarters. Consequently, a weakening of the euro vis-à-vis the USD since March 2014, begun to support the Euro Area growth in the beginning of 2015.

The impact of household survey factor that was rather strong in the first three quarters of 2014 decreased rather much in the fourth quarter and continues to show only moderate support for the Euro Area growth.

All in all, the Eurogrowth indicator only points to a moderate growth for the Euro area in the winter 2015.

It is possible that the coincident impact of the industrial survey in the first quarter of 2015 will be corrected upwards in the next estimations, as more information becomes available. The new massive unconventional bond-purchase program by the ECB, introduced after the commission survey in January 26, should affect industrial expectations positively, especially as it adds to the strong support provided by the sharp decline in the oil price and the substantial weakening of euro.

However, the uncertainty relating to the problems with Greece and a crisis in Ukraine have intensified, which can attenuate confidence and Euro Area GDP growth in the first quarter.

Paavo Suni