Saturday, 27 Nov 2021

Eurozone crisis: Bombshell economic report casts shadow on recovery – month on month fall

EU at ‘crunch point’ over future of the Eurozone says expert

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The Centre for Economic and Business Research (Cebr) was commenting on figures published by Eurostat, the European Union’s statistics division, on Friday. The figures indicted industrial production with the eurozone – comprising the 19 member-states which have adopted the euro as their single currency – contracted by 0.2 percent month-on-month in September.

It marked the second consecutive month of declining industrial output, following August’s 1.7 percent contraction.

On an annual basis, September’s industrial output levels were up by 5.2 percent, compared to the revised 4.9 percent increase recorded in August.

Cebr economist Pushpin Singh said: “Ongoing supply chain disruptions, along with inflationary pressures, have cast a shadow over the economic recovery in the eurozone.

“In light of continued disruption to manufacturers, with supply impediments and higher input costs expected to persist into 2022, it is consumers that are likely to drive growth in the currency union.

“Cebr forecasts GDP growth of 4.7 percent across 2021 as a whole.”

September’s slight fall in industrial output reflects the continued disruption to supply chains, a key challenge for the economic recovery in the monetary union this year.

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With consumer demand rebounding after the easing of lockdown measures and relatively high vaccination rates in multiple states, producers have been scrambling to expand their supply operations to meet consumer demand.

However, this process has been sluggish, a problem that has been exacerbated by rising input costs, including energy.

As a result, inflation has surged in the euro area and is estimated to have stood at its highest rate since July 2008 in October, at 4.1 percent.

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Looking past the overall contraction in industrial output, there is considerable variation between eurozone member states.

Some members of the EU27 saw increased industrial output, with Estonia witnessing the largest monthly growth of 5.3 percent.

Conversely, other countries, including Denmark and the Czech Republic saw a fall in industrial production by five percent and 3.2 percent respectively.

More notably, Germany saw a decline in industrial output by 1.4 percent, offering further evidence that the resurgence of coronavirus cases in the country is dampening its economic recovery.

The industrial output contraction was yet another indicator of the “fragility of the euro area’s economic outlook”, the Cebr analysis suggested, with supply disruptions and input price pressures remaining ”problematic” for producers.

Nevertheless, euro area growth, fuelled by consumer demand, has shown signs of promise, with a quarterly increase of 2.1 percent for the second quarter of 2021.

Following this, it is estimated to hit 2.2 percent in for Q3 2021, according to a flash Eurostat estimate.

As such, Cebr is predicting consumer demand to continue to drive the eurozone recovery in Q4, amid an “otherwise bleak economic climate”.

Specifically, GDP growth for the whole year is forecast to reach 4.7 percent.

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