Eurozone industrial production falls in line with expectations

Industrial production in the eurozone fell by 1.3 per cent between May 2012 and May 2013, following a fall of 0.6 per cent the month before. This was in line with analysts' expectations.

Production of durable consumer goods fell by 6.2 per cent, whileintermediate goods decreased by 2.6 per cent and capital goods by 0.9 per cent. Energy rose by 0.2 per cent and non-durable consumer goods by 0.1 per cent.

However, production fell by more than expected between April and May 2013, falling by 0.3 per cent against expectations of a 0.2 per cent fall. This was driven by a 2.3 per cent drop in the production of durable consumer goods and a 1.5 per cent decrease in capital goods.

Source: Eurostat

It's been noted by numerous analysts that, despite May's fall, even if eurozone industrial production was flat in June, it would have expanded by 0.9 per cent quarter-on-quarter in the second quarter.

Howard Archer, chief UK and European economist at IHS Global Insight says:

The hope for manufacturers is that gradually rising confidence encourages businesses to invest more, and encourages consumers to spend a little more. Meanwhile, recently muted input prices are helping Eurozone manufacturers to price competitively.

But despite this, Ben May, European economist at Capital Economics, says the results show the sector cannot be relied upon to generate a strong recovery.

But we still expect industrial production growth to be pretty sluggish at best over the coming months. After all, the manufacturing PMI and EC industrial survey are still consistent with falls in production in the near term (see chart below). What’s more, exports could face a drag from the past strength of the euro. In other words, the modest industrial recovery that took place in the early stages of this year may fizzle out.

Source: Capital Economics

Martin van Vliet of ING adds:

Looking ahead, the scope for further output recovery in the industrial sector in the remainder of this year appears limited. The hiccup in global growth due to the slowdown in China and the rise in bond yields means that external demand for industrial goods may not strengthen much. Moreover, with fiscal policy set to remain tight in many eurozone countries, domestic demand is unlikely to rise sharply either. The best we can realistically hope for is that industrial production will be on a gradual upward trend over the next six to 12 months. Against this backdrop, we suspect that ECB interest rates will indeed have to remain low for an extended period.