Back to reality for Eurozone industry in May - ING

Bert Colijn, Senior Economist at ING, notes that the Eurozone industrial production declined by -1.2% MoM in May, almost nullifying the upwardly revised 1.4% gains in April.

Key Quotes

“The strong uptick in April was almost too good to be true among declining new orders and weakening capacity utilization. May data reflects that, making the annual increase in production just 0.5% YoY now. Without the jumps in production in January and April, Eurozone industrial output has been more or less stagnant since mid-2015.

The Eurozone economic recovery is currently driven by domestic strength as people are returning to work and real income growth is relatively high due to low inflation. This has not yet resulted in strengthening industrial production though and it is likely that industry will be a drag on Q2 GDP growth in the Eurozone. Unless June saw a spectacular increase in output of more than 1.5% MoM, industry will have contributed negatively to growth. This stands in sharp contrast to the first quarter, which saw growth of 0.9% due to the strong jump in January.

In fact, it looks like it could be a while before the Eurozone economy is firing on all cylinders again. New orders for manufacturing have been decreasing for five months in a row now and capacity utilization decreased in the second quarter, for the first time since 2Q14. The manufacturing PMI did improve in June, but those gains will likely be counterweighed by uncertainty after the British EU referendum. As the Brexit-vote will probably also affect new orders because of the devalued pound and uncertainty surrounding the investment climate, more weakness could be in the making in Q3. Eurozone industry therefore seems to be operating under the classic Eurozone motto of muddling through for the foreseeable future.”