Eurozone: GDP growth confirmed at 0.3% QoQ, industrial production remains weak – ING

Bert Colijn, Senior Economist at ING, notes that the Eurozone industrial production grew by 0.6% QoQ in June, which is not enough to avoid a decline in output in 2Q and is in line with the weaker 2Q GDP growth that Eurostat confirmed today.

Key Quotes

“Industrial production continues to struggle to improve. While June data showed some recovery from the strong decline in May, QoQ growth was negative: -0.4%. This is mainly because of the exceptionally strong month of January, which weighed heavily on the 1Q number, but also YoY growth disappointed at just 0.4%.

The weak growth in Eurozone industry shows that the improved domestic demand of recent quarters is not yet translating to higher industrial output. This is partly due to the weaker trade environment and global economic uncertainty, but that does not seem to explain the full picture. This month, Spain, Italy and France all saw production decrease, while the Netherlands and Germany saw increases. France and Italy even experienced YoY declines in production of 1.4% and 1% respectively.

It seems likely that the relatively weak industrial environment is continuing in the current quarter. Capacity utilization has stagnated over recent quarters, which is strongly correlated with growth in production. As third quarter capacity utilization has come in at just 0.1% higher and is still below its 1Q peak, this does not bode well for 3Q industrial performance. Also because new orders have continued to be weak in the first half of the year and the PMI for manufacturing dropped slightly in July.

Eurozone GDP growth was confirmed at 0.3% QoQ in the second release. German and Dutch growth surprised on the upside at 0.4% and 0.6%, respectively, while Italian and French growth stalled. Even though a political stalemate in Spain is cause for concern, growth continued to be very strong in 2Q at 0.7%.

The slowdown in Eurozone GDP from the very strong first quarter was expected and seems in line with the growth trend of the Eurozone economy. The question remains if even this lower growth rate can be sustained in 3Q. With Brexit uncertainty weighing on exports and industrial weakness, it seems that the consumer has to carry a lot of the weight of the Eurozone expansion on its shoulders.”