Euroland industry losing momentum

In 2017, industry was a key driver of the economic upturn in the Eurozone. In 2018, which is fast drawing to a close, it has lost considerable momentum. In line with the restrained trend for order receipts, industrial output is hardly growing any longer and is tending to move sideways.

The customary sentiment indicators have clearly dimmed in the course of the year. Both the PMIs and industrial sentiment as polled by the European Commission survey are on the back foot. This can presumably be attributed firstly to the uncertainty given the greater risks, such as those associated with the US trade dispute and the danger of increased customs tariffs on European products. Secondly, companies are affected by dwindling demand and, in particular, lower order receipts from abroad. That said, these corrections are taking place at a high level.

At the current edge, industry is facing a dip in capacity utilisation, but the rate of utilisation remains comparably high. However, the existing order backlog is gradually decreasing. Moreover, the companies surveyed are more sceptical now as regards the prospects for output, export business and new hires.

On balance, the indicators and sentiment indices for industry suggest that in coming months the sector can hardly be expected to spur economic growth either in Euroland as a whole or in the individual member states. However, there can be little talk of a dramatic crunch or a recession in industry. Yet a positive turnaround in the trend is also not in sight. The prospects for European industry are thus consistent with our overall forecast for the Eurozone, which in the coming year will, we believe, grow slower than previously. After industrial output recorded strong growth of 2.9 percent in 2017, the figure for 2018 may well be only around 1.5 percent. For the coming year, on the basis of the indicators we expect growth in industrial production to be somewhat weaker again – at 1.2 percent.

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