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Europe’s Major Economies Saw Industrial Production Growth for November, But Caution Remains

Industrial production rose in November in a number of Europe’s main economies, data released this week shows, but economists aren’t yet ready to declare an end to the manufacturing sector slowdown.

On Friday, France, Spain and Italy published upbeat figures for industrial production, for the most part beating expectations. While the data offered some relief, economists said it is too early to give Europe the all clear.

“All these positive results need to be taken with a pinch of salt,” Oxford Economics economist Daniela Ordonez said.

In France, total industrial output–comprised of output in manufacturing, energy and construction–rose 0.3% in November, above economists expectations of 0.1% growth, statistics agency Insee said. However, manufacturing output declined 0.1% on month after growth in both September and October. The other two components of output–construction and energy–increased.

Goldman Sachs’s Alain Durre said the decline in the manufacturing sector doesn’t imply risks to its baseline growth outlook for France, with a forecast of 0.35% gross domestic product growth in the fourth quarter of 2019.

ING Senior Economist Julien Manceaux said December should bring better figures, allowing for a rebound in manufacturing production in the quarter after the third quarter’s 1% contraction from the second quarter.

“However, this may already be yesterday’s story: the Bank of France survey showed weaker capacity utilization and lower order books at year-end which could bring some weakness in industrial activity figures at the start of this year,” Mr. Manceaux said.

In Italy industrial production rose slightly in November, statistics agency Istat said. Industrial output rose 0.1% from October in seasonally adjusted terms, but a 2.1% decline in the energy component dragged production down.

The rise follows a 0.3% decline in October. In the two months, industrial production fell a total of 0.4% relative to the third quarter, confirming the continuing recession in the sector, said Loredana Maria Federico, chief Italian economist for UniCredit.

UniCredit expects industrial weakness to continue to weigh on economic activity in 2020.

“On the positive side, activity in the services sector showed further resilience at year-end, offering an offset to the slowdown in industrial activity,” Mrs. Federico said.

In the dichotomy between the contracting manufacturing sector and the expanding service sectors, it is hard to tell in what direction the divergence will eventually reconcile, said Paolo Pizzoli, Italy senior economist for ING.

Spanish industrial production expanded 1.0% in November, following a 0.5% decline in the previous month, statistics office INE said. This is the biggest increase in 10 months, according to Bankia.

As in the case of Italy, although November’s data are positive, combined figures for November and October show “a jam on the brakes” in the fourth quarter from the previous quarter, Bankia said.

The vulnerability of the sector remains, driven by the weakness of European trading partners, the Spanish bank said.

Friday’s data follows positive German data on Thursday. German industrial figures showed a 1.1% expansion in November, beating forecasts and following disappointing industrial orders data on Wednesday.

Industrial output remains below third-quarter levels in all countries but France, and is 0.3% lower for the eurozone as a whole, Mrs. Ordonez at Oxford Economics said, adding that strong industrial growth would be needed in December to record a positive fourth quarter, which she considers unlikely.

“A marked industrial pick-up should not be expected as external demand is set to remain subdued,” Mrs. Ordonez said.
Source: Dow Jones

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