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Eurozone Industrial Production Falls

James Boston
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Eurozone Industrial Production Falls

Eurostat has just published an update to the state of the Eurozone’s manufacturing sector in the form of May’s Industrial Production figures. The year on year number has fallen to 0.5% on a week day adjusted basis, this compares to a 1.4% reading in April and a consensus estimate number of 0.5%. Month on month this metric is showing at -1.1% seasonally adjusted growth for May compared to 0.8% in April, market consensus estimates were for a -1.2% contraction in the reading.

Both France and Italy produced below par Industrial Production numbers last week and both have now called for relaxation of the Eurozone’s Growth and Stability Pact rules. No doubt several other hard pressed member states will echo these calls in time. This has prompted Germany’s Chancellor, Angela Merkel, to draw a line in the sand by calling for a re-affirmation to the pact. Merkel has cited the fragile Eurozone economy as being at risk from any large scale deviation from the pre agreed rules.

Germany’s Chancellor also highlighted the unfolding troubles at a Portuguese Bank as a reminder for the need for greater Eurozone economic solidarity. Banco Espirito Santo, one of Portugals largest banks, had it’s shares suspended last week after falling 17%. But this did not happen in time to prevent contagion dragging down all Eurozone bourses as this fresh crises served as a reminder of the underlying weakness in Europe’s banking sector.

The precarious nature of Europe’s banking sector will now return to the fore, adding further pressure on the European Central Bank (ECB) to take action. The notion of quantitative easing has to date been frowned on by German authorities and this is one of the reasons that the ECB has held back the printing presses so far. The fear of contagion across the banking sector however may well serve to encourage a German re-think on it’s opposition to a large scale bond buying program.

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