Eurozone Industry Still Lacks Momentum

After a weak January, eurozone industrial production grew for four months in a row despite the Middle East crisis and higher energy prices. A boost from European industry's relative comparative advantage over Asia helped a surprisingly resilient production recovery. Besides that, extra defence spending efforts are helping certain manufacturing sectors more structurally. But the recovery has paused in recent months.

The latest industrial production figures are hardly disastrous, but they do underline a picture of lost momentum. Production in the eurozone fell by 0.1% in July after already declining by 0.1% in June, leaving production broadly flat compared with a year earlier. While sectors such as capital goods and energy still showed some resilience, weakness in consumer-oriented industries remains striking, particularly for non-durable consumer goods, where production was down sharply compared with last year.

But while production figures are still lacklustre, sentiment among manufacturing corporates is becoming more upbeat again. The PMI indicated accelerating output in August, despite energy prices rising again. So while manufacturing is unlikely to contribute much to GDP growth over 3Q, there is hope for stronger performance towards the end of the year.

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