July data was revised up from -1.5% m/m to -1.0% m/m, and to a lesser extent, June (+0.1 pp to 0.7% m/m) and May (+0.1pp to -0.3% m/m), as well. Thus, industrial production growth in Q2 now stands at 0.7% q/q, revised down from the initial estimate of a healthy growth rate of 1.2% q/q.
Today’s marked rebound in August and the upward revision to July’s data managed to reverse the negative picture for Q3 GDP growth that we received in the first month of Q3. We now see only slight downside risks to our baseline scenario of moderate GDP growth in Q3 (+0.2% q/q, see Figure 2), as the carry over strongly improved from -1.3% q/q in July to +0.1% q/q in August (assuming September comes in flat). Although PMIs eased slightly in most of the countries in September, forward-looking components remain above the 50-threshold, pointing to a gradual but fragile recovery in industrial production (see Figure 3). This is also in line with the EC survey, which continued to suggest that activity is on a moderate upward path.
Capital goods data also rose and were revised up strongly, which brought them more in line with a modest recovery in investment. July’s data were particularly worrying, showing a sharp decline of 2.6% m/m and implying a significantly negative carry-over (-0.6% q/q). The data put into question our scenario of a fragile recovery in investment, particularly as part of the Q2 bounce in investment was largely due from a technical rebound after a disappointing Q1. The robust rise in August (+2.4% m/m) however counters these fears and implies a positive Q3 carry-over of 0.5% q/q.
IP rose everywhere except in Ireland (-0.8% m/m) and Italy (-0.3%), but Q3 carry-overs remain negative for most of the countries. In Italy, although IP came in lower than expected, the disappointing data was owing mainly to weak energy production, while other components presented a more upbeat picture. Thus, we think that the breakdown of Italian IP signals that the economy is in a better shape than the headline index suggests, although Q3 carry-over is still significantly negative at -1.0% q/q (see August IP on the weak side, but probably too early to dismiss recovery hopes).
German IP rose by 1.8% m/m, and July data was revised up by 0.7pp broadly balancing the risks to our Q3 GDP forecast (+0.4% q/q, see German industrial production rebounds in August). In France, IP increased modestly by 0.2% m/m, confirming that IP is very unlikely to contribute to Q3 GDP growth (strong negative carry-over at -1.5% q/q), and even attaching downside risks to our flat GDP forecast. Spain managed to secure a moderate rise for a second month in a row, while Portugal posted the sharpest increase, surging by 8.3% m/m. After two months of contractions, the Netherlands recorded a robust increase (+2.4% m/m), which improved the Q3 carry-over, still one of the worst of the euro area (-1.8 % q/q).