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IP Contraction Softer than Headline Data Suggests

MNI (London)

According to MNI calculations based on Eurostat weightings, headline October eurozone industrial production masks a softer decline.

  • Irish readings are again distorting the aggregate print largely due to high volatility related to transfer pricing by multinational corporations. October saw a -10.7% m/m plunge following a September +7.1% m/m jump.
  • As such, October euro area industrial production likely recorded a softer -1.2% m/m contraction when excluding volatile Irish data. This is 0.8pp higher than the -2.0% m/m fall published in today's headline data, signalling a less drastic slowdown in euro area production.
  • On the other hand, there is a large element of supply-side bottlenecks easing allowing production to remain elevated, notably in the automotive sector -- also noted in UK data earlier this week.
  • Backlogs boosting production implies the underlying health of the industry is worse than data suggests. These outstanding orders are declining sharply, as flagged by PMI surveys over the past months.
  • The October industrial production data follows weak September growth (when excluding Irish data) and appears set to drag substantially on eurozone growth into Q4.

Source: MNI / Eurostat

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