The Wilder View

Euro Area ‘Hard Data’ Catching Up with the ‘Soft Data’ – Industrial Production

Euro area industrial production (ex construction) declined 0.8% in the month of April. Across the major sectors, the largest decline occurred in capital goods; however, the trend in consumer and intermediate goods is worse than that of capital goods.

The regional divergence is clear, as the two-month trend in industrial production – I use the two month trend since this series is quite volatile month-to-month – is strongest in Luxembourg, Slovakia, Slovenia, and Ireland, and weakest in the Netherlands, Spain, Estonia, and Greece.

Another way to look at the divergence is to plot German production against the rest of Europe. It’s evident that Germany, with its large 35% weight in this index, is propping up the average. German industrial production is 10% above 2005 levels, while the Euro area ex Germany’s industrial production is 8% below levels in 2005. That’s an 18 ppt divergence.

Finally, a comparison to the US is illustrative. The US industrial sector is outperforming that in Europe, as production continues its positive trend with relatively easy fiscal and monetary policy accommodating the private sector’s desire to save. The US production base is 2% above that in 2005, while that in the euro area (including Germany) is 2% below.

In all, the euro area April industrial production release points to further divergence in growth prospects and a very weak start to the second quarter of 2012. The ‘hard data’ seems to be catching up with the weak ‘soft data’, like the PMIs (see Edward Hugh’s summary on the Euro area PMI).

Rebecca Wilder

9 Responses to “Euro Area ‘Hard Data’ Catching Up with the ‘Soft Data’ – Industrial Production”

mickgfJune 14th, 2012 at 8:15 am

I wonder if politicians can understand those simple diagramms. I wonder if they can understand the phrase "with relatively easy fiscal and monetary policy accommodating the private sectors desire to save"

Patrick_VBJune 14th, 2012 at 9:42 am

What is striking also is that Germany no longer appears to be immune to developments in other euro area (or EU) countries: your IP-Germany graph shows that industrial production in Germany is now also beginning to decline. Germany is a very large euro area country (about 27% of euro-16 GDP), but even so, it can't remain uneffacted by a decline in the remaining 73% of euro-16 GDP.

Patrick_VBJune 14th, 2012 at 9:50 am

By the way, for any readers of French, the OFCE (Observatoire Français des Conjonctures Economiques) blog has a good post on Germany and its external economic exposure through trade linkages.

Rebecca WilderJune 14th, 2012 at 11:39 pm

Hi Patrick_VB,

It is quite striking for how long Germany was seemingly resistant to the Economic travails of the rest of the region. This is also a product of China and the US slowing down; but recent surveys (like the Ifo) suggest that business confidence, even in Germany, is being impacted by the crisis.

So no, not immune.


Leave a Response