After contracting over the previous two months, industrial production rebounded in July, rising by 1% m/m. Yet, survey data are not very encouraging for the remaining of the quarter. After stabilising in Q2, GDP growth is likely to remain subdued in the third quarter.

  • After contracting over the previous two months, industrial production rebounded in July, rising by 1% m/m, thanks mainly to a sharp increase in production of capital goods. Among the largest economies of the area, the picture was rather differentiated. If Germany posted a solid month-on-month growth rate (output was up by almost 2%), activity just inched up in France, stabilised in Spain and fell by 1% m/m in Italy.

  • A good start of the quarter for the eurozone as a whole is welcome news. The carry-over (which assumes zero growth over the following two months) is at 0.4%, while output was just flat in the three-months ending in June. Yet, available information for the remaining part of the quarter are everything but buoyant. Over the summer, survey data lost momentum. In particular, the August manufacturing PMI survey signalled that output contracted in France and it remained stable in Germany and Italy. Geopolitical tensions and weak demand are weighing on manufacturers’ moods. Against a backdrop of sluggish demand (retail sales fell by almost 0.5% m/m in July) and rising uncertainty, firms will not launch new investment plans and do not increase their labour demand. Therefore, we are not very optimistic regarding GDP growth for the third quarter of the year. After stabilising in Q2, GDP might rise by a meagre 0.1% q/q in Q3.

  • Going forwards, activity growth might improve, although gradually. The Asset Quality Review and stress test,conducted by the ECB, should help strengthening the banking sector, which represents, by large, the main source of external funding for firms. In addition, the measures recently adopted by the ECB (purchases of private-sector debt securities, interest rate cuts, special refinancing operations up to mid-2016) should significantly ease its monetary policy stance, providing fresh support for domestic demand. Yet, as these measures will affect the economy with a lag, we do not expect a significant acceleration of the output before the second quarter of next year.

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