Economy in Brief: May 2023

Industrial output in Europe continues to be challenged in March. The median percentage change for the early reporting European Monetary Union members shows a drop of 1.1% following a gain of 1% in February and a drop of 1.7% in January. There are still net declines over three months, over six months, and over 12 months for the median, based on the grouping of countries in the table.

Of the 14 European economies listed in the table, 11 of them show month-to-month declines in industrial production in March. That is very substantial breadth. The countries showing increases in March are Luxembourg, Spain, and Finland. Among the rest of the countries, industrial production declines show small drops only in Norway and Italy where IP sheds just of 0.4% month-to-month; all the rest of the declines are month-to-month declines of one full percentage point or more (nine in all).

The median calculation shows a steady pace of decline over three months, six months, and 12 months at annual rates. The decline over 12 months is 1.2%; the decline over three and six months, in both cases, is at -1.3%. Over three months, six of the 12 European monetary union economies are showing declines in industrial production; eight of them show declines over six months and seven show declines over 12 months. The breadth underlines that output trends remain consistent across each of these spans.

For the quarter-to-date, which is for the first quarter, since March data complete the quarterly results, a decline in the median of -0.4% is indicated. There are declines in six of the reporting European Monetary Union economies in the first quarter (QTD).

The manufacturing PMI for the entire European Monetary Union shows month-to-month declines in March and February although it shows a net rise over three months juxtaposed against net declines over six months and 12 months.

The French trade deficit contracted to 9.95bln euros in March from 11.37bln euros in February.

French exports show more resilience than imports, but they have a complicated trend in play. Exports rise by 9.5% over 12 months, fall at a 6.5% annual rate over 6 months and edge up at a 0.7% annual rate over 3 months. This semi-weakening profile is still considerably stronger than for imports.

Import trends are simply decelerating progressively. Imports fall by 2.4% over 12 months. They fall at a faster, 29.4% annual rate over 6 months, and then they fall at an even faster 36.7% annualized rate over 3 months. The import picture in France is much more worrisome than for exports, but there also are special issues there.

As for components, exports show a consistent but not uniform pattern of the various flows advancing over 12 months, contracting over 6 months then rebounding over 3 months. The ‘other’ category is the exception to this set of trends.

Imports show a consistent withering trend overall that is echoed by two of the three components as ‘food’ and the ‘other’ categories show steady deceleration. Transportation equipment imports decelerate sharply from 12-months to 6-months then reduce their rate of contraction over 3 months. The sector is still weakening but not at progressively faster rates of change.

German industrial production fell by 3.4% in March driven lower largely by a 4.4% decline in capital goods along with a 3.5% decline in the output of intermediate goods. Consumer goods output backtracked by 0.1% in March.

Sequential growth paths The sequential growth rates for output in Germany paint a mixed picture with 12-month growth at 1.6%, 6-month performance showing a decline of 0.4%, at an annual rate, and 3-month growth surging at a 9.5% annual rate, despite the sharp drop in March. The 3-month period is largely bolstered by substantial increases in January and February when output rose by 3.7% in January and 2.1% in February. As a result, the March drop is a partial backtracking from that strength.

Sector trends in German output However, the components of German industrial production do not paint a particularly strong picture with a good deal of weakness portrayed over 6 months and 12 months, largely offset by some strength over 3 months; the exception is capital goods that reverses those patterns. Capital goods output is strong over 12 months and 6 months then falls at a 4.8% annual rate over 3 months. Intermediate goods have the opposite pattern, with output falling over 6 months and 12 months then rising at a 21.2% annual rate over 3 months. Consumer goods output declines over 6 months and 12 months, then makes a marginal increase at a 1.6% annual rate over 3 months. As a result of these scattered trends, the true trend for production overall in Germany is simply too turbulent to nail down.

Construction gains momentum In the construction sector, output fell by 3.1% in March after sharp gains in February and January. Construction does show acceleration and progress with 12-month rate at -2.7%, 6-month growth at 4.3% annualized, and 3-month growth at a stunning 39.8% annual rate.

Real sales and order trends Real manufacturing orders, however, show sequential weakness with a sharp drop of 10.7 March and with 12-month growth at -11%, 6-month growth at -13.2% annualized, and 3-month growth at -22.5% annualized. Real manufacturers’ sales also are challenged. Real sales in manufacturing point lower with growth of 3.8% over 12 months, a 3.7% annual rate decline over 6 months, and a sharper 8% annual rate drop over 3 months. Real sales in manufacturing also fell in March by 2.9%.

Other industrial indicators Other industrial indicators for Germany also create a mixed picture.

ZEW: The index from ZEW remains negative and it weakened in March compared to February. Its sequential readings show deterioration. The 6-month average deteriorates from the 12-month average, but then an improvement occurs over three months compared to six months.

IFO: The IFO manufacturing index shows some tendency to increase with the 6-month and 12-month readings nearly identical and some improvement over 3 months; the monthly sequence from January to February to March, strengthens steadily. The IFO manufacturing expectations reading strengthens steadily from 12-months to 6-months to 3-months and strengthens from January to February to March. The IFO is the most upbeat reading for German manufacturing in the table.

EU Commission Indexes: The EU Commission industrial survey for Germany contrarily shows sequential weakening from 12-months to 6-months to 3-months and that signal is further reinforced by monthly sequential weakness from January to February to March.

The industrial indicators, as a group, paint a mixed picture of German manufacturing.

Other European IP reporters Other early reporters of industrial production data in Europe include France, Spain, Portugal, and Norway. France reports sequentially weakening output. Spain reports sequentially strengthening output. Portugal reports somewhat mixed trends but shows output declining on balance over all three horizons. Norway shows declines in output that worsen slightly over 6 months compared to 12 months; it still logs a gain over 3 months in the face of a small decline posted in March and no change at all in February.