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Economy in Brief


by Bob Brusca Euro Area Industrial Production July 12, 2007

Despite a vigorous rebound in May, industrial production in the Euro area is slowing down and falling in the quarter. Most main components of industrial output are dropping in the quarter to date period as well.

Euro area industrial production is slowing down on most horizons. Over three months inflation-adjusted growth is under two percent and has been for two months running. That is not much of a pace to carry in an economy with a weak consumer sector. Clearly, Europeans see this downshift as a temporary matter. Still, the four largest economies in the Euro area also have growth lower on a quarter-to-date basis and only the UK, a large EU country, has growth up quarter-to-date. Manufacturing output is slower and actually DOWN on a Euro area wide basis at a minus 0.6% annual rate two months into Q2 - that could switch to a positive reading if June’s result is strong enough. Consumer goods output is dropping in the quarter at a minus 0.8% rate and materials output is off by a stronger -1.3%. Even capital goods output is off in the quarter to date but dropping at a very slow minus 0.4% pace.

Growth in industrial production in the quarter clearly has been slowed and will wind up as slowing even if it does not drop. While recent comments from various Euro area officials have centered on the strength of the region and how that explains the strength of the Euro, the chipping away of growth trends as the Euro has risen in value is something that should not be ignored.

So far we hear little in the way of merchants or manufacturers complaining that the Euro is too high but we do hear words of caution lest the euro go too high. One thing we are aware of is that Germany is the most productive economy in Europe so we will probably find that output there holds up longer even when European growth is slowed elsewhere in the Euro area by FX considerations. But at the moment all large EMU countries are seeing a decline in output trends with German output still the fastest, followed by volatile Spain, Italy and the UK (an EU country with a strong exchange rate) and then France. It’s a trend to keep an eye on.

Euro area and UK IP and MFG
SAAR Except M/M Mo/Mo May-07 May-07 May-07  
Euro area Detail May-07 Apr-07 Mar-07 3-mo 6-mo 12-mo Q-2-Date
MFG 0.8% -0.9% 0.4% 0.9% 3.8% 2.8% -0.6%
Consumer 0.4% -0.9% 0.8% 1.4% 2.1% 1.1% -0.8%
Consumer Durables 1.7% -2.0% 0.1% -0.7% -0.7% 0.0% --
Consumer Nondurables 0.4% -0.8% 0.9% 1.9% 2.7% 1.3% --
Intermediate Goods 1.0% -1.3% 0.5% 0.7% 4.6% 3.0% -1.3%
Capital Goods 1.1% -1.0% 0.2% 1.0% 4.5% 4.0% -0.4%
Memo: MFG 1-Mo% 1-Mo% 1-Mo% 3-mo 6-mo 12-mo Q-2-Date
Germany: 2.3% -2.3% 0.6% 2.4% 5.0% 6.1% -2.3%
France: IP ex Construction 0.4% -1.0% 0.2% -1.5% 3.0% -0.3% -1.1%
Italy 0.7% -0.9% 0.3% 0.4% -0.8% 1.0% -2.7%
Spain 7.2% -5.1% 1.9% 15.7% 7.6% 2.5% -10.5%
UK 0.3% 0.4% 0.5% 4.8% 0.8% 1.0% 2.9%
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