Eurozone industrial production and employment show healthy increases - ING

Eurozone industrial production increased by 0.5% MoM in April, but underwhelmed as this was mainly due to higher energy production explains Bert Colijn, Senior Economist at ING.

Key Quotes

“Expectations of accelerating industrial output for Q2 still stand though. Employment growth in Q1 held a steady pace of 0.4% QoQ, showing a broad-based recovery in the labour market.”

“Eurozone industrial production increased in April after months of disappointing growth. Yearly growth dropped from 2.2% to 1.4%, but this was mainly due to the strong jump in April 2016. Still, we see no reason to be overly optimistic about these figures because growth in production was mainly due to energy production improvements, which had been contributing negatively in Q1 due to the mild winter. Growth in production of goods dropped in April though and capital goods production even declined. While the monthly data for production is volatile, this does show that industry continues to struggle on its way up.”

“The outlook for industry does remain bright though as businesses have been indicating that backlogs of work are increasing as new orders are coming in at a faster pace. This will likely translate into accelerating growth over the course of Q2. Still, while backlogs of work have been increasing, this does not mean that Eurozone industry is overheating. Capacity utilization has been improving over 2016 and is getting closer to peaks seen in previous expansions, but businesses are also still indicating that a lack of demand is limiting production far more than a lack of labour, funding or equipment.”

“The fact that labour is not a limiting factor for industry is because of the elevated unemployment rate. The rate has been coming down significantly though as firms in both industry and services are hiring. Employment grew by 0.4% QoQ and 1.5% YoY in Q1, extending the recent trend of healthy employment gains. Job growth has been strongest in services where demand picked up earlier, but recent employment growth of 0.7% YoY in industry shows that the labour market recovery is broad-based.”