Eurozone Industry: Is The End Of The Slump In Sight?

Industrial production is likely to have increased in May, but don’t let the numbers fool you. Without an improved trade outlook, manufacturing could be in for a weak second half of the year. As long as employment remains stable, however, an outright eurozone recession remains unlikely

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Industrial production peaked in December 2017 and has been on a declining trend ever since. While the indicator is volatile and plenty of one-off factors have been impacting the industrial sector over the past year and a half, the trend is worrying. Although the reasons behind the downturn remain somewhat of a mystery, as some indicators are still pointing to decent performance, it does seem that weakening global demand and trade uncertainty have had a more significant impact than initially expected. This means more sluggishness could be on the cards. Remarkably though, this contraction in activity has not caused employment to decline. As long as that is the case, an outright eurozone recession remains unlikely.

Export growth is still positive but industries with export exposure are the weakest

Production seems sensitive to weakened global demand and trade uncertainty, not least because the decline in production coincided with falling confidence and the start of significant trade rhetoric from the United States. Still, German exports to the US and China have held up pretty well and national accounts data suggests that eurozone exports of goods are still rising. That said, the growth rate has been slowing markedly - except for a brief pick up in 1Q, which was mainly related to stockpiling in the UK. This adds to mixed views on the downturn in production as it begs the question as to whether external demand can really be the problem when exports are still going up.

Production has declined most among export-dependent industries

Source: Eurostat, World Input-Output Database, ING Research Note: excludes five smallest industrial sectors

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