Eurozone Industrial Resilience, Narrower Trade Deficit Signal Shallow Recession

A recovery in the euro area industrial production due to higher demand as supply constraints continued to ease along with a fall in commodity prices, and a narrowing in the trade deficit on the back of strong export growth add to signs that the single currency bloc is set for a shallow recession.

Elsewhere in the region, Germany reported the gross domestic product figures for 2022, which showed that growth slowed less than expected in the biggest economy in Eurozone.

Eurozone industrial production recovered in November and the trade deficit narrowed to a 9-month low, as exports advanced amid a notable fall in imports, data from Eurostat revealed Friday.

Industrial production grew 1.0 percent on a monthly basis in November, in contrast to the 1.9 percent decline in October. Output was expected to climb moderately by 0.5 percent.

The most recent upturn was largely led by a 1.0 percent gain in capital goods output, closely followed by a 0.8 percent rise in intermediate goods.

Durable consumer goods production exhibited an increase of 0.4 percent, while manufacture of non-durable consumer goods and energy products dipped by 1.3 percent and 0.9 percent, respectively.

Year-on-year, industrial production growth softened for the second straight month to 2.0 in November from 3.4 percent in October.

This was the weakest growth in the current four-month sequence of growth and slower than economists’ forecast of 0.5 percent.

Industrial production in the EU27 climbed 0.9 percent on month, taking the annual increase to 2.0 percent in November.

German GDP rose 1.90 percent in 2022 after a 2.60 percent expansion in the previous year, Destatis data showed Friday. Growth was driven mainly by private consumption and investments.

After a strong first half, the Eurozone economy is now going through a tough phase mainly due to the surge in energy prices in the aftermath of the Russia-Ukraine war, weakening global demand and inflationary pressures.

The energy crisis has become a major concern for Eurozone as several countries in the bloc, including Germany, were heavily dependent on gas imports from Russia.

In its latest report, the European Commission said that although growth in 2022 is set to be better than previously forecast, the outlook for 2023 is significantly weaker for growth and higher for inflation compared to the summer interim forecast.

However, the recent easing trend for supplier bottlenecks and inflation helped the Eurozone economy to recover some growth momentum in the final month of the year 2022.

The S&P Global Eurozone productivity survey showed that trends for aggregate productivity worsened in France and Italy in the fourth quarter of 2022 compared with the third quarter, with Germany seeing a slower decline.

Across these above said nations, contractions in manufacturing moderated.

Among member states, the highest monthly increases were observed in Ireland, Luxembourg, and Malta, while the largest decreases were seen in Estonia, Sweden, and Croatia.

Eurostat also revealed on Friday that the trade deficit declined to a seasonally adjusted EUR 15.2 billion from EUR 28.1 billion in October. This was the lowest since February, when the deficit totaled EUR 12.4 billion.

Exports increased 1.0 percent from October, while imports fell 3.8 percent in November.

On an unadjusted basis, the trade in goods resulted in a deficit of EUR 11.7 billion, which was bigger than last year’s shortfall of EUR 3.9 billion due to high energy bills.

Compared to November 2022, exports logged double-digit growth of 17.2 percent. At the same time, imports registered a much faster increase of 20.2 percent.

From January to November, euro area exports rose 18.9 percent from last year, and imports surged 40.5 percent. As a result, the euro area registered a deficit of EUR 305.1 billion, in contrast to a surplus of EUR 125.0 billion in the previous year.

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