Euro area industrial output bounds back as supply constraints ease

Euro area industrial production bounded past economists forecasts in July, recovering its level from before the pandemic as supply chain disruptions eased.

According to Eurostat, in seasonally adjusted terms, industrial output shot up at a 1.5% month-on-month pace, handily beating forecasts for growth of 0.6%.

Gains were broad-based by countries with output in Germany up by 1.0% on the month and Italy beating forecasts with an increase of 0.8%.

While gains in other big economies such as France and Spain were more restrained, other big increases were seen in Belgium (5.0%), Finland (1.0%), the Netherlands (1.4%), Poland (1.25) and Portugal (3.5%) - and especially in Ireland (7.8%).

By industry groups, output of non-durable consumer goods increased quickest, rising by 3.5% on the month, followed by production of capital goods which rose by 2.7%.

Commenting on the latest figures, economists at Barclays Research pointed out that Irish output alone had added seven tenths of a percentage point to July's gain in total output and Belgium another two tenths, the latter due to higher production of the Pfizer-BioNTech vaccine for Covid-19.

Gains in output machinery, computers and autos were "sending a signal that supply disruptions may be easing", they added.

They also noted that the sector's supply side might soon benefit from fading one-off weather events, disruptions to individual plants, larger orders of chips and a structural rebalancing in supply and demand.

Nevertheless, recent warnings from Volkswagen and Daimler that chip shortages might extend into 2023 were not lost on them.

Going forward, and leaving supply constraints aside for one moment, industry was facing waning demand from emerging economies due to the pandemic, but on the other hand manufacturers had yet to replenish their own stockpiles.

Against that backdrop, they predicted that euro area gross domestic product would expand at a quarter-on-quarter pace of 2.3% in the third quarter and by 5.3% year-on-year in 2021.