LONDON – Slumping industrial output across the 19-country eurozone is stoking talk of a possible recession this year, even before any additional damage from Brexit.
Official figures on Wednesday showed that industrial output in the eurozone was 4.2 per cent lower in December than the year before, increasing concerns about the economy just at a time when the bloc is facing the prospect of Britain crashing out of the European Union without a deal.
The annual rate of decline in industrial production was the worst since November 2009 and has ratcheted up expectations that eurozone economic growth in the fourth quarter may be revised down from an already paltry quarterly rate of 0.2 per cent.
Compared with the previous month, output was down 0.9 per cent December against expectations for a 0.4 per cent fall. The fall was not confined to one sector or one country – it was broad-based.
“The downturn will serve to keep worries about a possible eurozone recession alive,” said Andrew Kenningham, chief European economist at Capital Economics. “The risk of an outright recession has clearly risen.”
The outlook for the eurozone has turned gloomier in recent months. As well as growing worries over the global economy due to trade tensions between the United States and key trading partners, including Europe, and new emissions standards for cars, the eurozone has to deal with the fear that Britain could crash out of the EU without a deal. Though that would hit Britain’s economy harder, the eurozone would also be affected by the return of tariffs and other barriers on the flow of goods with one of its biggest trading partners.
In a study published Wednesday, research group Oxford Economics said consumer-facing industries that rely heavily on trade with the U.K., such as the German automotive sector, are “particularly vulnerable” to the prospect of Britain crashing out of the EU without a deal and without a transition to new arrangements.
“Hardest hit would be small, open economies such as Ireland, and high-tariff consumer goods industries such as the automotive, textiles & clothing, and food & beverages sectors,” said Stephen Foreman, senior economist at the consultancy.
A disorderly Brexit, he said, would shave 0.3 percentage points off eurozone manufacturing by the end of 2020 compared with the baseline predictions. But those industries at the front-line would “face considerable strain” and a more pronounced downturn.