Euro Area IP Falls After Four Months of Expansion

Of the 12 EMU member countries in the table, seven logged manufacturing IP declines in September. This total contrasts with four in August and none in July. Over three months, only one country, Ireland, shows a decline in output. Over six months, Finland, Malta and Ireland show declines. Over 12 months, all EMU members except Portugal and Spain show declines.

Output levels compared to their January values find all categories of euro area IP are lower and manufacturing in all countries is slower except for Spain. The virus hit hard and depressed output quickly and substantially early in the year. Despite a rapid bounce back, output remains broadly lower than its pre-coronavirus levels.

Output is accelerating broadly from 12-months to six-months to three-months. But a shorter progression from July to August to September shows slowing. Five of 12 EMU members in the table show sequential slowing over the last three months, none show acceleration, and only Greece and Spain have a higher growth rate in September than in July.

A strong rebound in Q3
The third quarter was large a block-buster recovery-quarter with overall EMU output up at an 82.9% annual rate. Manufacturing output rose at a 91.7% annual rate. Across the EMU, Finland’s Q3 expansion was slowest at a 0.8% annual rate; the next slowest were Ireland, Malta and the Netherlands at annualized rates of just under 25%. France, Italy, Spain and Portugal logged Q3 annualized growth rates in excess of 100%. While there is some unevenness in the spread of growth, for the most part Q3 growth has been very strong across the EMU.

Strength meets resistance
To me this is a bit like the game of rock, paper and scissors. The economy seems to be rock-solid and strong growing like gangbusters, but then the tiny virus like a sheet of paper envelops the hard rock and stops progress in its tracks. As we look to the next several months, Europe will be under various restrictive programs that will impede growth. It is starting already in September.

A tough road ahead
France is now considered the most coronavirus affected country in Europe having just passed Russia. France reported 35,879 new cases on Wednesday boosting its national toll to over 1.865mln. And France is now almost two weeks into a new lockdown. Economic data are clearly going to be swimming against the current for some time in Europe. To date the momentum has been good, but now the resistance generated by a need to contain the virus appears to be overwhelming.