Eurozone industrial output rises unexpectedly, employment holds steady

Eurozone manufacturing rose unexpectedly in December, according to fresh data released on Wednesday, suggesting a revitalisation of industrial output alongside stable employment growth.

Industrial production within the common currency area jumped 2.6% month-on-month, following a revised 0.4% increase in November, significantly surpassing the anticipated 0.2% decline.

Moreover, the year-over-year rate escalated to 1.2%, rebounding from the decline of 5.4% in November.

At the same time, eurozone employment experienced a 0.3% quarter-on-quarter increase in the fourth quarter of 2023, following a 0.2% rise in the third, with the year-on-year growth rate holding steady at 1.3%.

However, Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, expressed concerns regarding productivity trends, noting that despite robust employment growth, productivity, defined as the disparity between employment and GDP growth, continued to decline.

“That’s great news for the economy, but it is also an inflationary concern in Frankfurt,” he said.

“More specifically, the European Central Bank (ECB) is worried that an inflationary combination between accelerating unit labour costs, falling productivity and sticky collective bargaining agreements are contributing to upward underlying inflation pressures, threatening a timely return in inflation to 2%.”

Vistesen also shed light on the exceptional surge in Irish industrial production, which defied expectations with a 32.5% leap.

However, he cautioned against overinterpretation, emphasising that such anomalies did not necessarily reflect broader eurozone economic trends.

“The leap in Irish production didn’t prevent overall eurozone output from being flat on the quarter, after a 1.1% decline in the third quarter.

“Manufacturing in Germany, in particular, remained under pressure at the end of last year.”

Looking forward, Claus Vistesen identified tentative improvements in surveys and global manufacturing indicators as positive developments.

“Remember that mean-reversion in the Irish numbers are now likely to weigh on the first quarter numbers.

“The distortions from Ireland - concentrated in capital goods in December - also means that it doesn’t make much sense to look at sectors in this report, though we note that the trend in intermediate goods output - which includes energy intensive chemicals and the like - remained under pressure in the fourth quarter.”

Reporting by Josh White for Sharecast.com.