Research Briefing | Jul 26, 2023

Structural and cyclical headwinds cause industrial recession in Eurozone

We now expect industry in the eurozone to remain in a mild recession in H2 this year after output already contracted in H1.

What you will learn:

  • Eurozone industry has proven even more resilient than expected over the past year. Output is currently only around 1% below last year’s level despite the war in Ukraine, elevated energy prices, and rapid policy rate hikes.
  • In our latest baseline forecast, we expect output will trend sideways in the coming quarters. But we will make some further cuts in our next update given the adverse near-term impact of cyclical and structural challenges.
  • Global monetary policy tightening is the key headwind weighing on demand this year. Structurally higher energy prices also add pain for energy-intensive firms.
  • Intermediate goods makers face a very weak outlook this year and next. For intermediate goods, the sharp reversal of the huge post-pandemic inventory cycle adds to the challenge as supply bottlenecks ease and costly-built stocks become expensive to finance.
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