Europe’s ‘Miserable’ Industrial Recession Deepened In December

It won’t surprise you to learn that industrial production in the euro-area came in worse than expected for December.

Output dove 2.1% MoM in the final month of 2019, Eurostat said Wednesday. The YoY print showed a truly unfortunate 4.1% decline, much worse than the 2.5% drop consensus expected.

I won’t mince words: It was all down. Intermediate goods, capital goods, durable consumer goods, non-durables, and energy all fell sequentially, and all but non-durable consumer goods fell on year. This is one helluva slump:

This serves to underscore the extent to which the European economy was still having a difficult time getting off the mat to close 2019, even as markets were busy pricing in a reflationary narrative centered mostly on trade optimism and the prospect that central bank accommodation would start to manifest itself in the data.

Unfortunately, GDP figures for Q4 were a disappointment. The euro-area economy barely expanded in Q4, data out late last month showed. Growth decelerated to a minuscule 0.1% pace QoQ, less than the 0.2% the market was looking for, marking the worst quarter in nearly seven years. France and Italy unexpectedly contracted.

All eyes are now on the preliminary read from Germany, due later this week. Last week, the numbers out of Berlin were a disaster, as factory orders and industrial production cratered in December.

The bloc – and especially Germany – continues to cling to the idea that fiscal rectitude and strict allegiance to budget discipline will somehow boost growth eventually due to the purported confidence channel (i.e., economic actors will see that governments are responsible and will thereby be more confident when it comes to investment and consumption). Frankly, it’s an absurd doctrine, especially during times when exogenous shocks (e.g., trade wars and pandemics) come calling.

Christine Lagarde has been keen to adopt an optimistic tone since taking the reins from Mario Draghi, but the data isn’t cooperating. ECB Chief Economist Philip Lane said Wednesday that the coronavirus outbreak may deal “a pretty serious short-term hit” to the economy, as spending plans are canceled and postponed. “If you take a year the impact on the overall economy might be relatively minor”, but in the near-term, there’s “a lot of uncertainty”.

This comes as the ECB is hastily conducting a strategic review of their approach to inflation, which remains stubbornly below target, effectively validating the derisive “Japanification” label that’s has been seared into the bloc’s forehead for years.

“Eurozone industry ended the year on a miserable note”, ING said Wednesday. “The contraction in production, which has now completed its second full year, has left production 6.9% lower than it was at its December 2017 peak [and while] November production had shown a slight uptick, December’s [numbers] indicates it’s too soon to call an end to the eurozone industrial recession”.