Eurozone Industrial Production rebounded strongly in May

A significant increase in pharmaceutical production has caused another rebound in eurozone production. While production is volatile given US frontloading, second quarter GDP may turn out not quite as bad as expected.

Eurozone industrial production has been bouncing around in recent months, with the US frontloading of eurozone goods playing no small part. In May, production jumped by 1.7% compared to April, bringing production close to its March peak.

Much of the US frontloading from the eurozone is related to pharmaceuticals, as reflected in the data. Eurozone pharmaceutical production increased by 27.7% in May, a new all-time high. With pharma not impacted by tariffs so far (although there have been threats), it looks like another spell of frontloading has boosted the May production numbers. Tomorrow, eurozone trade data can shed more light on whether eurozone exports to the US indeed jumped again in May.

Other sectors have seen far less pronounced movements. And since eurozone pharma production is very concentrated in Ireland, there has not been a strong uptick in other countries' production growth. France and Italy saw declines in May, while Spain saw a small increase. Germany did see production grow by 2.2%, but that pales in comparison to the 12.4% increase in Ireland.

In the months ahead, the picture for eurozone industry remains muddied by all the tariff developments. Underneath all the trade war headlines, there are some positive signs of eurozone manufacturing bottoming out, but this seems to be a slow-moving process which could easily be derailed by high tariffs. Did someone say 30%?

In any case, the strong May production data suggests that second quarter eurozone GDP will not suffer as much as we previously thought from a reversal of US frontloading. With weak service sector data, there is no room for optimism though; the eurozone economy seems set for stagnation in the short term. How much Americans stock up on medicine will not change that.

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