Eurozone industrial output rose 0.1% in April from the prior month, the European Union’s statistics agency Eurostat said Monday, as factories rushed to fill orders from customers anxious about supply disruptions linked to the Middle East conflict. The gain followed an upwardly revised 0.4% rise in March and fell short of the 0.2% increase expected by a consensus of economists polled by The Wall Street Journal.
“Eurozone industrial production held up well in the first two months of the Iran war,” Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, said in a note. But output is expected to have weakened since as the energy shock takes its toll on industrial operations.
In May, S&P Global’s Purchasing Managers’ Index for manufacturing in the eurozone fell to 51.6 from a near four-year high of 52.2 in April, as input prices rose at the fastest pace in three-and-a-half years. The slowdown in factory activity is expected to drag on growth in the second quarter. The eurozone economy contracted 0.2% in the first quarter, compared with growth of 0.2% in the prior quarter.
On Thursday, the European Central Bank lowered its growth forecast for this year to 0.8%, while also trimming its expectations for 2027. The revision came as surging energy costs from the conflict and tighter monetary conditions weighed on the economic outlook.
News of an interim deal between the U.S. and Iran to end the war and reopen the Strait of Hormuz has offered some hope for the eurozone’s energy-intensive industries. Oil prices fell more than 4% on Monday, while natural gas prices also tumbled. Still, it remains too early to anticipate a rebound, Joerg Kraemer, chief economist at Commerzbank, said in a note.
“We expect a rollercoaster of good and bad news over the next two months,” Kraemer said. While the agreement limits downside risks, Commerzbank expects only 0.6% growth for the eurozone this year.
“The big picture is that the re-opening of the Strait would avoid a much worse outcome for eurozone industry, but the region still faces major headwinds from high energy costs and intensifying competition from China,” Allen-Reynolds at Capital Economics said.
Separate data released Monday showed the European Union swung to a trade deficit in April, primarily driven by an increase in the cost of energy imports. Imports from China were down compared with March, but remained up 7.1% on year.
Trade between Europe and China will be in the sights of policymakers at the Group of Seven summit in Evian-les-Bains, France, this week. Officials are keen to address the influx of cheaper Chinese imports to the bloc, which pose an increasing threat to the competitiveness of European manufacturers. MSI previously reported that China’s factory activity rebounded in March as the Iran war loomed over growth, and that eurozone retail sales fell 0.4% in April as the conflict’s energy costs began to bite.