Euro zone industry takes a hit even before high energy costs bite

Euro zone industrial production unexpectedly shrunk ​in January as most of the bloc’s biggest countries recorded declines, casting doubt on the sector’s long-predicted ‌recovery as surging energy costs will add to the sector’s multi-year misery.

Output in the 21 nations sharing the euro currency dropped by 1.5% on the month, underperforming expectations for 0.6% growth, data from Eurostat showed, as Germany, Italy and Spain all reported contractions.

Compared to a year ​earlier, output was down 1.2% against expectations for 1.4% growth in a Reuters poll of economists.

Euro zone industry has been ⁠broadly stagnant for years and its output is now 3% below its 2021 level as high energy costs, stiffening ​competition from China, U.S. tariffs, poor productivity growth and low global demand for European cars have all hurt the bloc.

Germany, the euro zone’s biggest country and the bloc’s dominant carmaker, took one of the biggest hits and its output is ​now 9% below its 2021 ​level, with poor order figures ⁠suggesting no near-term respite. German output has been trending down for years, keeping the overall German economy stagnant for the past three years but a recovery for 2026 is still expected ​on a government spending spree on defence and infrastructure.

That boost may be offset by ​surging energy costs ⁠as oil prices are up around two-thirds since the start of the year and natural gas costs are up around 80% on the U.S.-led war in Iran, a double whammy for industry as it raises costs and saps purchasing power.

Source: reuters.com