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Economy in Brief

EMU IP Shrinks Again
by Robert Brusca  August 12, 2021

Industrial production in the EMU fell by 0.3% in June. Manufacturing output fell by 0.4%. Both gauges have fallen for two months in a row, as the vagaries of Covid reinfection have come into play again in Europe.

Monthly trends
The decline in EMU output in June is cause by the decline in output in capital goods producing industries. However, there was not much strength elsewhere to offset the June decline in capital goods weakness since intermediate goods output rose by just 0.1% on the month and consumer durables output gained just 0.1% as well. There was strength in consumer nondurables where output rose by 1.6% month-to-month. Still, the June experience is much different from May when capital goods output fell by 2.5% with intermediate goods output falling by 0.1% and overall consumer goods output falling by 1.7%. Weakness in May was broad across sectors while in June it is weakness concentrated in capital goods producing industries, with true vitality confined to only one subsector, consumer nondurable goods.

Sector performance
Sequential growth rates find overall output and manufacturing output decelerating steadily from 12-months to six-months to three-months. Intermediate and capital goods sectors follow this pattern while both consumer durables and nondurables deviate to show more strength either over six months or over three months. Quarter-to-date (QTD) overall IP is at a -0.5% annual rate while manufacturing manages a 0.1% rate of expansion. QTD consumer goods and both its subsectors are expanding at a double-digit pace with intermediate goods output up at a more modest 4.2% annualized rate. But capital goods output is falling at nearly a 10% annual rate (-9.1%) to drag overall IP into decline in the second quarter. Comparisons with January 2020, the month just before Covid struck, show a 1.5% decline overall prompted by a 6.1% decline in capital goods output that dominates a 2% gain in consumer goods output and a 2.1% gain in intermediate goods output. The theme since Covid struck in the quarter and in each of the last two months is that weakness in capital goods has been holding back manufacturing since Covid struck and it has done that persistently even after a late cycle spurt that is not lasting.

Across EMU members
The table features 11 long-standing EMU members plus three other European economies (the United Kingdom, Sweden, and Norway). Among the EMU members, five of eleven have declines in manufacturing output in June. Among the four largest economies, only Germany has an output decline in June, but Germany has output declines in each of the last four months- the only EMU member to show such weakness and Germany is an economy dependent on its capital goods sector. May, in contrast, saw declines in 8 of 11 EMU members while April saw declines in only one that was Germany.

Despite the clear deceleration in overall output and in manufacturing output, only Italy, Ireland, and Portugal decelerate from 12-months to six-months and also from six-months to three-months. Seven EMU members show weaker growth over three months than over six months but only three show weaker growth over six months than over 12 months. Weakness seems to have less breadth across the members if we ignore the size of the economies involved.

In the quarter-to-date (which is the competed second quarter, now), there are five countries with QTD annualized growth rates in double digits and only four countries with declining growth (only two of them in double-digit declines). Manufacturing IP overall gains at a bare bones 0.1% pace in Q1 while most countries show strong output increases. However, two of the four largest economies post IP declines: Germany and France.

The final assessment is that of output since Covid struck. Manufacturing IP overall is lower by 1.3%. But only five of the eleven countries in the euro area have output lower on balance on that timeline (Germany, France, Italy, Portugal, and Malta). That line-up includes the three largest EMU economies. There are double-digit gains in Ireland and in Belgium only.

On balance, the EMU is still in a recovery process from the arrival of Covid. The reinfections cycle, however, seems to have caught it again as output has been affected these last two months. There is a great deal of variation within the EMU about how various countries are faring. The virus not only affects people differently but also hits economies with a different force.

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