Euro zone industrial output falls as supply bottlenecks take toll

Industrial output in the euro zone fell back below pre-pandemic levels in August as supply chain bottlenecks restricted production of many products, such as German cars, raising concerns that the bloc’s economic rebound may run out of steam.

Several companies in Germany’s large carmaking industry have been forced to idle production and put thousands of workers back on furlough due to shortages of materials, particularly semiconductors.

This led to a 1.6 per cent drop in manufacturing production in August from the previous month across the 19 countries that share the euro, Eurostat announced on Wednesday. The fall was in line with economists' expectations.

One of the steepest declines was in Germany, where manufacturing output dropped 4.1 per cent. However, in France, industrial output rose 1 per cent, while Spanish industrial output was up 0.1 per cent.

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Maddalena Martini, economist at Oxford Economics, said: "The automotive sector is bearing the brunt of the global semiconductor shortage, with car manufacturers often sitting on a large stock of semi-finished vehicles waiting for components."

But she added that the “latest data suggest that the supply of microchips is finally turning a corner and we expect it to gradually ease over the coming quarters”.

Eurostat said capital goods production was down 3.9 per cent in August, durable consumer goods output fell 3.4 per cent, intermediate goods declined 1.5 per cent and non-durable consumer goods fell 0.8 per cent. The only growth was in a slight rise in energy output.

Overall growth

The overall euro zone economy is still expected to grow at about 2.5 per cent in the third quarter, compared with the previous quarter, boosted by a continued rebound in household spending. But some economists worry that this could be hit by the recent surge in European gas and electricity prices.

Fabio Balboni, senior economist at HSBC, estimated that the rise in regulated energy prices and oil prices would knock 0.6 per cent off euro zone household income, and reduce gross domestic product growth by 0.2 percentage points.

“It still does not seem enough to derail the recovery, accounting for the likely pick-up in wages and accumulated excess savings,” said Balboni. “Still, it could certainly take quite a lot of steam out of it, particularly considering the impact on poorer households, confidence and firms.”

The gloomier economic outlook was underlined by a sharper than expected drop in German investor confidence in the latest Zew survey of analysts, published this week.

Zew said the outlook for the German economy had “deteriorated noticeably” in October after its gauge of investor expectations fell for the fifth month in a row and its measure of confidence in the present situation dropped for the first time in seven months. – Copyright The Financial Times Limited 2021