BofAML: Sobre la producción industrial europea (Euro Area Economic Watch)

Redacción - Lunes, 08 de Febrero

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Euro Area Economic Watch: European manufacturing is no island

•   The resilience in the manufacturing PMI readings in the Euro area has been one of the key positive surprises so far.
•   The lagged effect of euro depreciation explains a lot of this resilience, which is likely to start fading.
•   Given the tight connection between manufacturing and services, ignoring signs of weakness in manufacturing would be costly.

The resilience in manufacturing PMI readings in the Euro area, still decidedly in expansion territory while they are contracting in the US and China, has been one of the key positive surprises for the Euro area so far. This supports the ECB's hawks' contention that "things are not so bad right now" - they have been quite eloquent lately - and that going for more aggressive options on 10 March would be ill-advised. We think this is a very short-sighted attitude.

We suggest here that the lagged effect of euro depreciation explains a lot of this resilience, which is thus likely to start fading - unless world demand recovers relatively quickly - now that in trade-weighted terms at least the European currency is re-appreciating. More fundamentally, we show that the connection between manufacturing and the "non-tradable" services sector is much tighter in the Euro area than in the US, by looking both at the PMIs and at output per industry from the national accounts. This means that ignoring any incoming signs of weakness in manufacturing would be particularly costly in terms of potential policy mistake in the Euro area.

Indeed, manufacturing is bigger there, and a more intensive user of intermediate services, while the so-called "non-tradable" sectors are more sensitive to shocks affecting world demand in Europe than on the other side of the Atlantic. In any case, given the capacity of manufacturing, while standing for only one-fifth of GDP in the Euro area, to generate massive volatility at the aggregate level, as well as its particularly high contribution to investment, "health issues" in this industry cannot be easily discounted.

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