Contrasting Trends in Industrial Production: Far East Vs Euro Area

Four more countries reported February data for Industrial production data today--India and Malaysia, representing the Far East; and France and Italy, representing the Euro Area. On the basis of the country data it appears that Industrial production declined in the Far East in February but rose in Europe. Indexes of industrial production for the past decade in India and Malaysia are shown in the first chart and those for France and Italy in the second chart.

Industrial production in India has risen throughout the decade, even during the recession years. Industrial production in Malaysia was 108.9 in February, 2011 or only 6% below its peak of January 2008. In the Euro Area, French industrial production in February was 8% below its peak of 104.3 in April, 2008 and Italian industrial production was 17% below its peak of 109.9 in August 2007.

The February declines in production in Malaysia and India were small, 0.2% for India and 0.3% for Malaysia. These declines may reflect pauses rather than changes in trend, however, the disruptions in Japanese production and trade flows resulting from the March Earthquake suggest that industrial production in the Far East is more likely to continue falling than it is to reverse its course--for the short run, at least.

While industrial production in Euro Area continues to increase, as exemplified by the trends in Italy and France, clouds are beginning to form on the horizon. The European Central Bank has begun to raise interest rates. On April 7, the bank raised its policy rate 25 basis points to 1.25%. The accompanying statement suggested that further rate increases were likely. Moreover, while inflation in the Euro Area has been relatively mild, the recent rise in the oil price is ominous.