Commentary Directory

Euro Area Industrial Production: January 2024

Jacob Hess
March 13, 2024

Euro area industrial production struggled to start the year as the index tracking production dropped to the lowest point since September 2020. In January, industrial production fell -3.2% MoM, reversing the 1.6% MoM growth in December and falling short of the -1.8% MoM that was expected by analysts. On a YoY basis, production is lower by -6.7%. The sharp decline in January is a huge headwind to GDP in the first quarter unless there is to be a miraculous recovery in February and March.

The key segment in this release was capital goods production which fell -14.5% MoM and ended down -12.1% YoY. The large monthly drop was likely a response to the strong 11.3% MoM increase seen in that segment in December, but there does seem to be a bit of an overcorrection that points to weakness. Specifically, that overcorrection came in the Irish capital goods production sector which dropped -29% MoM in January (after jumping 19% MoM in December). While that volatility does obfuscate the situation, it seems clear that the euro area manufacturing sector is maintaining a downtrend.

This data is consistent with the S&P Eurozone Manufacturing PMI remaining in contraction in the first two months of the year, falling slightly to 46.5 in February. The good news is that in that survey, the decline in new orders and purchasing activity observed in February was the slowest since March 2023, and growth expectations retained the 9-month high that was reported in January. The bad news is the large Germany economy sunk deeper into a nasty contraction in February, reaching a 4-month Manufacturing PMI low of 42.5. In the January industrial production report, Germany saw the 5th worst YoY decline in production, down -5.4%. Additionally, S&P made a brief note about Red Sea disruptions finally coming into play in February.