Industrial Production Remains Weak in EMU; Shrinking Trend Continues

Industrial activity in the European Monetary Union advanced for the second month in the row, according to previously released manufacturing PMI data. The manufacturing industrial production reading for the entire euro area is not yet available; however, for 13-European Monetary Union member countries, the median increase in December was 0.2%; this follows a 1.6% median increase in November and a decline of 1.2% for the median in October. Clearly the industrial production situation weakened in December compared to November and the trend remains weak as well.

Among the thirteen early reporting members, six report declines in industrial production including a decline of 2.1% in Germany and a decline of 1.8% in Spain: two of the four largest European Monetary Union economies. France managed to eke out a manufacturing gain of 0.3% while Italy posted its second increase in a row, a rise of 1.7% for manufacturing industrial production in December.

These results compared to November when only two of these reporting countries showed declines and to October when 12 of 13 reporting countries showed declines with Greece as the exception logging an increase of only 0.2% in October for manufacturing output.

Sequential patterns Sequential growth patterns that track growth rates over 12 months, six months, and three months show the median gain over 12 months at a -0.8% annual rate, the median change over six months is at a -2.1% pace, and the median change over three months just at a -2% pace. The pattern falls just short of being a sequential deceleration, but it clearly is a weaking trend and a persisting contraction. Over these periods, we find only 27.3% of the reporters show manufacturing output accelerating over 12 months, 53.8% show output accelerating over six months compared to 12 months. Over three months, output accelerates in 45.5% of the reporters compared to their six-month pace. The year-on-year comparisons show output broadly decelerating - nearly universally- compared to growth rates of 12-month ago across countries. Over six months there are more accelerations than decelerations but by a small margin and over three months more decelerations than accelerations, also by a small margin.

Deceleration and Acceleration by country Austria, Germany, Spain, Luxembourg, and Ireland show declines in output on each of the three timelines. France, Italy, Malta, and Portugal show output increases on all three timelines. Output trends show persisting deceleration for Austria, Germany, France, Luxembourg, and Ireland. There is persisting sequential acceleration only in Portugal. Among non-EMU reporters in the table, Sweden and Norway show ongoing deceleration. Obviously, these results describe a great deal of weakness in train vs. a small minority of strength (Portugal!).

Quarter-to-date The quarter-to-date growth rates (QTD) show declines in five EMU members with output in one country unchanged. Output declines QTD occur in Italy, Netherlands, Spain, Luxembourg, and Greece; output is unchanged QTD in Germany. Non-EMU reporters in the table all show QTD output declines. On a QTD basis, weakness dominates strength; however, the median change on the quarter is a gain at a 0.1% annual rate of growth.

Weak growth since COVID struck Evaluating output trends since January 2020 - just before COVID came to town - we find the median net gain on this nearly 3-year period is 1%; about one third of one percentage point per year on average. It has been a period of ups and downs and weak growth overall. However, only Germany, France, Luxembourg, and Portugal log output declines on this timeline. But Germany, the largest economy in the euro area, logs a drop of 6.3%; that will drag the EMU result down considerably.

Summing up Manufacturing PMI data show output trends improving over the last two months. The IP trends across countries show output has increased in each of the last two months but at a very weak pace in December. October logged a sharp and broad decline across the euro area and that weakness has been only partially mitigated by gains in November and December. The three-month declines across reporters tell that story clearly. Five EMU members show (annualized) double-digit drops over three months, compared to only four over six months and none over 12 months. There are two double-digit gains over three months, two over six months and one over 12 months. With median growth showing a decline at a 2% annual rate over three months, economic performance is poor but not threatening, especially not with two output gains in adjacent months. Still, the growth assessment remains guarded. Inflation is still high, the ECB is still on the rate-hiking war-path, and the regional geopolitical situation remains unstable.