Cantillon: Mario’s medicine may be kicking in

Is there a chance that Mario’s medicine is actually starting to work? For months now there has been debate about the apparent lack of success of the ECB’s quantitative easing programme in kick-starting inflation and growth across Europe, as promised by bank president Mario Draghi .The ECB responded last week by cutting key interest rates and expanding its quantitative easing programme.

However, while inflationary pressures are still absent, is there a chance that the euro zone is showing some signs of life? Higher inflation – the goal of the ECB – may follow stronger economic activity, of course, and while the ECB’s goal is restricted to achieving price targets, there can be no doubt that it would be happy to see some general economic uplift.

Evidence is patchy, but the latest euro zone industrial product figures – following some upbeat German data of late – may be an important indicator. They show industrial production up more than 2 per cent month on month and 2.8 per cent ahead on an annual basis, well ahead of the expectations of market analysts. Growth was stronger than expected in Germany and France, with a notable uplift in Italy.

Analysts were cautious, reckoning the ECB’s action last week suggested it did not believe this pace of expansion would be sustained. Some forward purchasing managers’ indicators have also been soft. But against that the industrial production figures have been solid for some months now and the January rise was the biggest monthly increase since 2009. It is a trend to watch, because if the big industrial companies across Europe are showing some signs of revival it will be important.

Not surprisingly, Irish industrial production, up 40 per cent plus year on year, was top of the pile. This has been driven by the pharma sector, up more than 100 per cent and computers, up 90 per cent. While these sectors are key contributors, the recorded data obviously greatly overstates the extent of increased contribution to the economy. Still, the corporation tax data and employment trend suggests that the underlying picture is strong and output from the traditional sector here is up a solid 3.4 per cent year on year, helped, no doubt, by the generally weaker trend of the euro.