Eurozone: Warmest February ever not so hot for industry - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Apr 13, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Bert Colijn, Senior Economist at ING, notes that the industrial production in the Eurozone has declined by 0.8% in February, while January’s growth was revised down to 1.9%.

    Key Quotes

    “Compared to February last year, industrial production is now 0.8% higher. February was an extraordinarily warm month, which has not done industry a lot of favors. Energy production declined by -1.2%, but that was not the only negative component in the release. None of the components showed growth on a monthly basis after the surge in production in January, although on an annual basis especially capital goods and intermediate goods show healthy growth rates of 3% and 1.9% respectively.

    The very strong growth in January seems to have been a one off, but levels of production are still significantly higher in February than in Q4 of 2015. This means that industry is likely going to have contributed positively to GDP in the first quarter of 2016. Even if production stagnates in March, quarterly growth will be around 0.9%, well above the growth of 0.3% in Q4 and 0.2% in Q3.

    While this is the case, it seems that another decline in production is more likely for March. The PMI for manufacturing indicated a sharp decline in February, while March also showed lower output growth in industry than in most of 2015. This also holds good for industry sentiment according to the European Commission, which is also well below levels seen in 2015. Uncertainty about geopolitical- and economic conditions are likely to dampen growth prospects in the Eurozone industrial sector for the moment.

    New orders in the Eurozone have also disappointed recently and are currently 3.4% below the peak in June. After a few months of growth, December was flat and January saw a decrease in orders. This does not bode well for production in the months ahead either. The one bright spot for industry is the fact that capacity utilization continues to increase in the Eurozone. This is correlated with industrial production and is moving close to levels seen in previous expansions. That means that some of the growth seen in January could be sustained for overall production this quarter, but the outlook for the coming months remains modest at best.”
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