Eurozone industrial output slumps

‘Data for June suggest that any accelerating growth in production from the trend of recent years has yet to happen’

INDUSTRIAL output in the eurozone fell in June in an uncomfortable drop that suggests the economic boom may not be as strong as analysts hoped.

Germany’s monthly output fell by 1.1pc, while Ireland’s crashed by 7.5pc in the choppy short-term index. French industrial output dropped 1.2pc.

Among the larger economies, growth was recorded in Italy, at 1.1pc, and the Netherlands, at 1.2pc.

Output fell by 0.6pc in June compared with May, led by a 1.9pc tumble in the production of capital goods and a 1.7pc fall in consumer durables.

That pulled the annual growth figure down to 2.6pc, Eurostat said, below the 2.8pc economists had anticipated. The monthly numbers can be volatile, and economists still believe the industry is on a positive trajectory, but the monthly drop means they are becoming more cautious on the overall growth outlook.

“Most indicators point to accelerating growth in production, but data for June suggest that any acceleration from the trend of recent years has yet to happen,” said Bert Colijn, senior economist at ING.

“We see the eurozone boom of 2017 everywhere except in the industrial production numbers.”

Surveys have indicated strong growth in the sector, with new orders for manufacturers rising, yet those indicators have not passed through into the official data.

“It is somewhat disappointing that production has yet to recover to its pre-crisis level. With the start of the crisis now 10 years ago, industrial production is still 6.5pc below its peak,” said Mr Colijn.

“After this lost decade for eurozone industry, a stronger recovery could be expected. Production data is notoriously volatile and subject to revisions, so a break in trend often only emerges after a few months of data.”

Jack Allen, European economist at Capital Economics, expects that, over time, the hard data should follow the strong survey numbers, and show sturdy growth in the sector.

“Looking ahead, the outlook for eurozone industry is fairly bright. While the manufacturing purchasing managers’ index fell in July, it remained higher than at the beginning of the year.

“And the European Commission’s measure of sentiment in the industrial sector points to continued strong annual output growth,” he said. “As such, industry should continue to contribute positively to the eurozone’s economic recovery. We forecast aboveconsensus GDP growth of 2.2pc this year and 2pc in 2018.”

Britain’s economy has been growing more slowly than that of the eurozone in recent months, but in June the industrial picture changed.

UK growth accelerated from 0.1pc in April and in May to 0.5pc in June, overtaking the eurozone.

Industrial output in the EU overall – including the eurozone and member countries that use their own currencies – shrank 0.5pc in June.

Economists expect the eurozone economy overall to grow by 2pc this year, up from 1.7pc in 2016.

However, that is forecast to be a high point. GDP growth is set to slow back to 1.7pc in 2018 and 1.5pc in 2019.