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Eurozone production falls as supply chain issues persist

By Jenni Reid

12:04, 13 October 2021

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Volkswagen factory in Wolfsburg, Germany, in 2016
Supply chain issues have slowed production in the German auto industry, dragging on Eurozone production – Photo: Shutterstock

Industrial production fell by 1.6% in the euro area and by 1.5% in the European Union in August, Eurostat data published Wednesday showed.

The seasonally adjusted figures were up by 5.1% and 5.3% versus August 2020, but analysts said they indicated July’s rise in factory output was a blip, with further falls to come.

Supply chain and resulting production challenges meant large monthly decreases were seen in Malta (-6.3%), Germany (-4.1) and Estonia (-4.1%). The highest increases were reported in Denmark (3.5%), Lithuania (2.9%) and Luxembourg (2.1%).

Production falls

A small rise of 0.5% in energy production in the euro area was not enough to offset falls in capital goods (-3.9%), durable consumer goods (-3.4%), intermediate goods (-1.5%) and non-durable consumer goods (-0.8%).

All were ahead of production in August 2020 except for durable consumer goods, which was down 1.9%, and energy production, which was down 0.6%

The eurozone has been hit by a global supply chain crisis, with a shortage of semiconductor chips particularly impacting the large German automotive industry.

Rough outlook

Melanie Debono, senior Europe economist at consultancy Pantheon Macroeconomics, said the figures were “no surprise” after August data showed German industrial production suffered its steepest drop since April 2020.

“Today’s data confirmed our view that July’s increase was just a blip, and mean that output’s rise above its pre-virus level was fleeting,” Debono said in an email to Capital.com.

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“Our assumptions for industrial production in September for the four major eurozone economies imply that the headline for Q3 may be a touch better than this, but not much,” Debono said, adding that lingering supply constraints, rising input costs and the energy crunch were likely to cause issues in the fourth quarter.

Stefan Posea, assistant economist at Capital Economics, agreed tougher times were ahead despite recent business surveys showing strong demand.

While German production has already been dented by the supply chain crisis, “other countries’ auto sectors are likely to struggle with component shortages in the autumn,” Posea said, while “the latest survey from the Bank of France suggests supply shortages are now affecting even those sectors which are not reliant on semiconductors.”

Some recovery?

Bert Colijn, senior economist for the eurozone at ING, said “there are some signs that production improvements are around the corner, but supply uncertainty means that some underperformance compared to other countries is to be expected in the short run.”

“For eurozone growth it is important to note the gradual increase in the number of sectors that are seeing production growth fade. The supply side problems are starting to be reflected more in the growth figures for 2H 2021, and are contributing to the slide in GDP growth expected for this half of the year,” Colijn said.

“We still expect strong overall growth to persist and take solace from continued strong incoming demand. For now, it does not look like supply side problems will cause a hard landing, but to cause some turbulence along the flight back to normality.”

Read more: Supply bottlenecks hit Germany’s industrial output

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