Industrial Production Down In July

Industrial production decreased in July by 1.5% m/m after rising by 0.6% m/m in June. Survey data, however, point to a rebound of output over the coming months. GDP is expected to increase further in Q3 after the solid performance of Q2. La production industrielle a baissé de 1,5%m/m en juillet après avoir progressé de 0,6% en juin. Les enquêtes signalent, toutefois, que la production devrait rebondir au cours des prochains mois. Le PIB devrait progresser davantage au T3 après la bonne performance du T2

■ Industrial production decreased in July by 1.5%m/n, after rising by 0.6% m/m in June. This downward correction was mainly due to the large fall in German and Italian output and to a smaller extent in France. By contrast, output inched up in Spain. Output contracted in all sectors with capital goods and production of durable goods
recording the largest fall. Yet, although these data are everything but encouraging, it is worth stressing that industrial production figures are highly volatile. The 6-month rate of change provides a better understanding of its underlying trend. In the six months ending in July production recorded a relatively small fall -0.2%, less marked than in the six- months ending in June (- 0.5%).

■ In addition, survey data have been drawing a better scenario so far. They have been on the rise over the past few months kept on increasing in August, and they will probably rise again in September. In particular, orders are increasing according to surveys and firms are likely to expand production to keep with higher demand. The inventory cycle might boost production further over coming months. Survey data signalled that firms might indeed started to adjust their levels of inventories to higher levels of demand.

■ To sum up, July’s negative figures might be interpret with cautious; survey data seem to suggest that this was just a downward correction after the strong June’s reading. Output is likely to increase in Q3 after the positive performance of Q2. Confidence indicators signal that activity might increase in both manufacturing and services sectors, while on the demand side, positive news seen in Q2, with both consumption and investment increasing, could be confirmed in Q3. Retail sales seem on a positive trend as confirmed by the increase (although modest) recorded in July, while investment might benefit from rising confidence, better prospects for demand and the progressive pass-through on the real economy of past improvements in financial conditions. Yet, it is too early to say that the eurozone is on a solid recovery path, and probably today’s data remind just that. Market sentiment is still fragile and could rapidly turn, while recent tensions in emerging markets and the Syrian crisis might weigh on global activity.

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