MADRID – Industrial production in the eurozone fell more sharply than expected in April, resuming its 2018 decline after a March bounce and underlining doubts about the strength of the economy as the European Central Bank faces a big call on the future of one of its key stimulus programs.
The European Union’s statistics agency Wednesday said the output of factories, mines and utilities across the 19 countries that use the euro was 0.9 percent lower in April than in March, although 1.7 percent higher than a year earlier.
That marked the fourth month in five in which industrial production has fallen. It was a sharper decline than had been anticipated, since economists surveyed by The Wall Street Journal last week estimated that output fell by 0.7 percent.
Each of the eurozone’s five largest members saw a drop in output, with the Netherlands experiencing the sharpest decline at 4.4 percent. While a slump in energy generation was largely responsible for the overall contraction, most manufacturing also retreated, the exception being the production of tools and equipment.
While the eurozone economy grew at an annualized rate of 2.8 percent in the final three months of last year, it managed an expansion of just 1.5 percent in the first three months of this. A drop in industrial output – which accounts for a quarter of the eurozone economy – was one of the factors behind that slowdown.
Rapidly rising factory output was one of the main drivers of the eurozone economy’s surprisingly strong performance in 2017, when it recorded its fastest growth in a decade. If sustained, weakening output would make it difficult for the economy to expand at a similar rate this year.
Economists have largely attributed the first-quarter slowdown to a combination of unusually cold weather, strikes in the eurozone’s two largest members, and a severe influenza outbreak in Germany. But economic data for April, as well as recent business surveys, record little sign of a pickup in the second quarter, which suggests more longer-lasting headwinds may be blowing.
In particular, the eurozone may be suffering from a loss of business confidence in response to mounting tensions with the US government over trade, a threat to growth that ECB President Mario Draghi flagged in an April news conference.
Leading indicators released by the Organization for Economic Cooperation and Development Wednesday suggest a sustained slowdown is under way. Based on a variety of data series that have a history of anticipating swings in future economic activity, the measures now point to easing growth in Germany, France, Italy and the eurozone as a whole.
By contrast, the leading indicators point to stable growth in the US and Japan, as well as pickups in China and India.
Uncertainty about the durability of first-quarter weaknesses will have a bearing on the ECB’s next big decision, which concerns when and how to bring a bond-buying stimulus program known as quantitative easing to a conclusion.
The central bank’s next policy decision is due Thursday, and market participants expect rate setters to indicate either then or at their subsequent gathering in July that the program is likely to end in December, after a final, three-month extension.
“The ECB has clearly signaled that the end of its QE program is nearing as inflation and wages show increasing signs of normalizing,” said Oliver Rakau, an analyst at Oxford Economics. “The details of the exit are more likely to be announced in July to allow a fine-tuning of the ECB’s communication strategy, but a phasing-out of net purchases is likely by year-end.”
Policy makers will likely be reassured by signs that despite the slowdown in growth, employment continued to rise at a robust pace in the first three months of the year.
In a separate release Wednesday, Eurostat said the number of people in work rose by 0.4 percent during the period, and to the highest level on record.