Contrasting industrial production data from France and the UK - BBH

France and the UK reported industrial production data for June wherein France disappointed while he UK reported better than expected numbers, notes the analysis team at BBH.  

Key Quotes

“French industrial output fell 1.1% in June, while the median Bloomberg forecast was for a 0.6% decline after May's 1.9% gain.  It suggests a possible loss of momentum as Q2 drew to a close, and is consistent with the July PMI that showed a slower start to Q3.”  

“Although it has not emerged as a market factor, we think Macron's waning support (below US President Trump's support in the US) is important.  It will impact Macron's ability to push his reform agenda, which we note that his two predecessors were also stymied in their reform efforts.  It will also impact the Franco-German relations after next month's German elections.”

“The UK reported better than expected industrial output figures but the impact on Q2 GDP estimates is minor.  Industrial output rose 0.5% instead of 0.1% as many economists expected.  The May series was revised from-0.1% to flat.  The year-over-year rate stands at 0.3%.  In May it was -0.2%.  However, the rise in UK industrial output was a bit of a fluke.”  

“Manufacturing output was flat and the fact that the North Seas producers did not shut for the normal summer maintenance appear to be behind the better report.  Vehicle production fell 6.7%, the largest drop in 3.5 years.  Construction output fell 0.1.%.  The median forecast in the Bloomberg survey was for a 1.4% gain.  On the other hand, the May series was revised to show a 0.4% decline rather than the original 1.4% fall.”

“Separately, the UK reported that its trade balance deteriorated in June.  The visible deficit (merchandise) increased to GBP12.7 bln from GBP11.3 bln in May.  The overall deficit (combines with service surplus) was GBP4.56 bln from GBP2.51 bln in May.  UK exports (by volume) was off by 0.7%, while the total value was off 2.8%.  Imports rose 3.3%.”  

“The J-curve effect, whereby a depreciating currency first cause deterioration in the trade balance before improving, is thought to be nearly over.  The weakness of sterling (even if not against the dollar) is expected to generate import-substitution behavior by consumers and businesses, and this was picked up in the recent BOE recent agent survey.”