Eurozone hit by weak output in June

A bigger-than-expected drop in eurozone industrial output in June suggests that gross domestic product growth data, due out tomorrow, might also disappoint.

Industrial production in the 19-member-state bloc fell 0.4% month-on-month in June, still 1.2% higher year-on-year, the EU’s statistics office Eurostat said yesterday, but below analysts’ expectations for a 0.2% fall.

The agency upwardly revised its reading for May to a 0.2% decline from previous forecasts for a 0.4% fall.

Some analysts now see expectations for quarterly GDP growth of 0.4%, as forecast by Reuters data, as optimistic. “With industry accounting for around 20% of gross value added, this could reduce growth by 0.3 percentage points relative to the first quarter when GDP rose by 0.4%,” Capital Economics analysts wrote in a note.

The output slowdown in June was most pronounced in Germany, France and Italy, while the rate of decline slowed in Ireland and Greece. In Finland, the Netherlands, Slovakia and Spain industrial production in June was stronger than in May.

In spite of the euro losing 16% of its value versus the dollar over the past year, output of more durable items was down month on month.

The largest fall in output was from factories in the durable consumer and capital goods sectors. Energy recovered from falls in previous months to become the most improved sector.

“We see that the eurozone has yet failed to profit from the weaker euro,” ING analyst Bert Colijn said.

While services are the largest contributor to eurozone growth, industrial production is very important because of its significant indirect impact on other sectors.