Euro area industrial production falls short in November, risks seen

Euro area industrial production shrank more quickly than expected in November, amid sharp declines in the output of capital and durable consumer goods.

According to Eurostat, industrial output in the 19 member strong single currency bloc weakened by 1.7% month-on-month and decreased by 3.3% year-on-year.

Economists had projected a drop of 1.2% versus October and a fall of 2.0% in comparison to the same month one year ago.

Versus October, production of capital goods was the weakest link in the chain, retreating by 1.3%, while that of durable consumer goods fell back by 1.7%.

Output of intermediate and non-durable consumer goods also softened, by 1.2% and 1.0%, respectively.

Energy production meanwhile was down by 0.6%.

From among the euro area's largest economies, industrial output in Germany was weakest, dropping by 1.7% on the month, followed close behind by falls of 1.6% in both Italy and Spain.

In France, production shrank by 1.3% although in the Netherlands it was flat.

Irish industrial production was especially weak, retrating by 7.5%.

For Germany, economists at Bank of America-Merrill Lynch were guardedly sanguine regarding the outlook, but quite cautious nevertheless, given the changes in which the automotive industry was immersed, the risk of US trade tariffs hanging over the sector and of insufficient stimulus in China.

Meanwhile, in Italy, BofA-ML was expecting more political headlines - with the associated uncertainty - until late into the front half of 2019.

"Political uncertainty could linger until late into H1 2019, adding to the cyclical headwinds. Even if the budget saga ended in a truce between Brussels and Rome, we do not think Italy would escape making more political headlines," economists at BofA-ML said.

"A full electoral calendar and decrees (not least those implementing pension reform and an income support scheme) could challenge the current ruling majority in the first half of the year."

Economists at Barclays Research were more positive on Germany, projecting quarter-on-quarter GDP growth of 0.1% for the three months to December, although that was down from a prior forecast for an expansion of 0.2%.

"Our downward revision comes in spite of the strengthening domestic demand, gradual normalisation of automotive production, improving Rhine shipments and, most importantly, de-escalation of global trade wars – all mitigating somewhat the risk of a technical recession in H2 18."