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Economy in Brief

European Industrial Production Shows Very Mixed Trends
by Robert Brusca  January 9, 2015

Of the eight early reporting EMU nations, three show output drops in November with Finland's output flat. However, over three months, there is still solid to strong output gains from this group of countries. Industrial output in the euro area looks somewhat firmer over short horizon than it appears over 12 months.

Germany, Europe's largest economy, saw a 0.3% output rise in November and shows a profile that is accelerating from 12 months to six months to three months.

Note that the sequential growth rates for Germany (inside one year) show an acceleration in train, but the chart by sector at the top shows that based only on year-over-year data each of Germany's major sectors is showing deceleration on the broader time line. Obviously, there is some volatility to sort out.

The manufacturing PMI data for Europe have continued to be weak into December. However, as of November, three-month actual IP growth rates in the EMU are mostly solid despite their unevenness in November month-to-month.

Over three months the weakness growth in the EMU is from Portugal at a -6.9% pace of contraction followed by France at -1.2%. On the upside, Ireland's industrial production is exploding at a 102% annual rate. Greece is up at a 17% annual rate. Spain is up at a 16% annual rate. Malta is up at a 10% annual rate. These reviving economies are suddenly having explosive growth in industrial production. These growth rates compare to a 7.6% three-month pace in Germany, 2% in the Netherlands and 4.3% in Finland. The euro has been steadily falling but it has made its largest drop at yearend and in early 2015, so this does not look like a reaction to exchange rate weakness.

On balance, these are much stronger results that we expected after seeing the muddled manufacturing PMI indicators for December. Even so over 12 months, five of these nine countries still have output declining. Over 12 months, the Netherland's industrial production is up by just 0.1% and Portugal's IP is flat on that horizon. The 12-month picture is generally much more stable and is the one that is much weaker.

The quarter to date (two months into Q4), like other short-term gauges, also shows strong results. Only two countries have IP lower on a quarter to date basis: France and Portugal.

The reporting EU countries that are not in the single currency zone (plus Norway) also show a mixed picture. Norway as an oil producer is only starting to show a decline in industrial production. Sweden shows IP declines over 12 months, six months and three months. The U.K. shows steady growth. Europe's trends remain mixed. Since the short-term growth rates are so volatile, it is hard to take their sudden strength in November for granted, especially with ongoing weakness in PMI data we already have for December.

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