Just-released macro data for the eurozone provides both a look in the rear-view mirror as well as a view through the side window. And the picture we are seeing is one of fading industrial resilience and stark divergence across the eurozone.
The look in the rear-view mirror shows a relatively resilient eurozone economy in the second quarter, after the US frontloading boost in the first quarter. GDP growth was confirmed at 0.1% quarter-on-quarter, from 0.6% QoQ in the first quarter. However, the eurozone economy is anything but synchronised currently, with GDP growth ranging from -1% QoQ in Ireland and -0.1% QoQ in Germany and Italy to 0.6% QoQ in Spain and 0.7% QoQ in Portugal.
Looking through the side mirror, however, paints a less favourable picture as industrial production plunged by 1.3% month-on-month in June, from +1.1% MoM in May. On the year, eurozone industrial production was only marginally up. With today’s data, the strong surge in the first quarter due to the US front-loading of eurozone goods ahead of higher tariffs has basically been reversed entirely.
When looking at eurozone countries and developments since the start of 2020, structural shifts in intra-eurozone competitiveness as well as sector-specific specialisation become very clear. While industrial production in Germany and Italy remains more than 10% and 5% below January 2020 levels respectively, Ireland has seen a sharp surge, and countries like the Netherlands and Belgium have also recorded solid gains. Drivers behind these shifts are energy costs and competition from China.