Economic growth in the euro zone is likely to ease in the second half of this year after a better performance in the first quarter than official statistics suggest, according to a new growth indicator.
The indicator, compiled by a consortium of European economic research institutes, estimates that year-on-year GDP growth will be 1.8 per cent in the third quarter and 1.7 per cent in the fourth.
It estimates that year-on-year growth was 1.5 per cent in the first quarter and 1.7 per cent in the second. Overall, annual growth this year is likely to be about 1.5 per cent, at the upper end of the European Central Bank's (ECB's) June forecasts.
The consortium said the ECB's interest-rate cuts last year, which reduced the main rate to 3.25 per cent in November, were providing support for the growth indicator.
"The development of the indicator is dominated by improving lagged effects of monetary policy, which are to some extent offset by worsening retail trade expectations," it said.
Commenting on the euro's strength against the dollar, it said: "The indicator shows the lagged effect of the dollar/euro exchange rate turning negative at the end of this year, due to the half-year lead of this variable."
According to Eurostat, the European Union's statistical agency, the 12-nation euro zone grew at a quarter-on-quarter rate of 0.3 per cent from January to March. But according to the consortium's indicator, growth in this period was substantially stronger.
The consortium said the large difference could have been caused by "a structural break in the behaviour of the indicator". On the other hand, it said it expected Eurostat to revise upwards its estimate of first-quarter GDP growth.
However, other economists noted that Eurostat based its GDP estimates on data supplied by national statistics offices in the euro zone, and said Eurostat could not change its estimates unless the national data were changed first.
Eurostat said seasonally adjusted euro-zone unemployment rose to 8.4 per cent in June. - (Financial Times Service)
