Industrial production in Eurozone to decline

Eurozone economic growth sank to a seven-year low in the final quarter of 2019. Prolonged weakness in the single-currency bloc’s industrial sector amid frail external demand, coupled with policy uncertainties at home, continued to constrain growth, with the French and Italian economies both unexpectedly contracting in the quarter, FocusEconomics reports.

This year, the economy looks set to remain anemic. The ECB sees growth at 1.1% in 2020 and 1.4% in 2021. Meanwhile, FocusEconomics panelists are slightly more pessimistic and estimate growth will decelerate to 1.0% in 2020, which is unchanged from last month’s forecast, before edging back up to 1.2% in 2021.

Foreign sales are poised to cool, constrained by an unsupportive external environment, which will also weigh heavily on investment activity. On top of that, downside risks to the outlook include political instability in Italy, uncertainty related to the renegotiation of the currency bloc’s trading relationship with the UK, an intensification of trade tensions with the US and the coronavirus outbreak in China.

A key indicator will be industrial production in the currency bloc’s powerhouse, Germany. Germany’s economy had a torrid 2019, with external headwinds and structural changes—particularly in the automobile industry—causing growth to sink to a six-year low. Industrial production was particularly hard hit, falling 3.4% on an annual basis in 2019 and 6.8% in December compared to the same month a year prior.

This year, the downturn is expected to soften, although industrial production is still projected to decline 0.4% nonetheless. The maximum forecast sees industrial production expanding 0.6%, while the minimum forecast estimates industrial production will contract 1.5%. The extent of the slowdown in China—amid ongoing tensions with the US and the recent coronavirus outbreak—looms large on the horizon and will largely determine how Germany’s export-focused economy fares in 2020.

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