Industrial production in the eurozone still in the doldrums
Poor industrial production data in the euro area leads us to revise downwards our Q4 GDP forecast from 0.2% to 0.0%. We also slightly revise downwards our annual GDP growth estimates: we now expect a GDP contraction of -0.5% in 2013 and mild growth of 0.8% in 2014.
In contrast to the increase expected by consensus (0.3% m-o-m), eurozone industrial production (excluding construction) fell sharply by 1.1% m-o-m in October, recording the largest monthly decrease since September 2012 and its second successive month of contraction. The September figure was revised up from -0.5% m-o-m to -0.2% m-o-m. As a result, the October figure was 0.9% qo-q below the Q3 average.
Negative figures in October except for Italy and Estonia
In terms of countries, figures were negative across the board as only two (Italy and Estonia) out of 12 reporting countries posted a monthly gain. Ireland (-11.6% m-o-m), the Netherlands (-3.5% m-o-m) and Germany (-1.2% m-o-m) were the worst performers in October, with the former reaching its lowest level since November 2009. France (-0.3% m-o-m), Greece (-0.9% m-o-m) and Portugal (-0.3% m-o-m) inched down for the second month in a row, while Spain (-0.8% m-o-m) shrank for the first time after two months of increase. In contrast, Italy (0.5% m-o-m) posted its second month of expansion in October. The surprisingly good performance by Italian industry is at odds with the lack of progress as far as its competitiveness is concerned. Some transmission of Germany’s previous expansion could be an explanation for this.
Hard to avoid contraction in Q4
After a strong performance in Q2 (0.7% q-o-q) and slightly negative performance in Q3 (-0.1% q-o-q), the entry point in Q4 is very low: -0.9% between October and Q3. October’s contraction will be very hard to offset as 1.0% m-o-m growth will be required in November and December to avoid contraction in Q4.
All in all, the industrial production’s data highlight the fragility of the recovery process in the eurozone and suggest that GDP could contract again in Q4 after two slightly positive quarters in Q2 and Q3. As a result, we are revising down our Q4 GDP forecast (from 0.2% to 0.0%) and leaving unchanged our forecast for sluggish recovery in 2014. As a result, annual GDP growth forecasts are slightly altered downwards (2013: -0.5%, 2014: 0.8%).