Widespread shortages of semiconductors and other materials are dragging down industrial output across the eurozone, according to data published on Wednesday.
The bloc’s industrial output fell 1 per cent in May from the previous month, according to Eurostat. Economists polled by Reuters had only expected a dip of 0.2 per cent.
The bigger-than-expected monthly decline left factory output 1.4 per cent below its level in February 2020, before the coronavirus pandemic hit.
The drop comes despite recent surveys indicating that manufacturers’ order books are surging due to buoyant global demand. However, their output is increasingly being hampered by shortages of crucial materials such as semiconductors, steel, copper, wood and plastics.
The worst-hit sector was motor vehicles, trailers and semi-trailers where production fell 7.8 per cent month on month, leaving output 25 per cent below pre-pandemic levels.
Economists expect supply-chain disruptions to continue for much of this year, meaning the eurozone economy is increasingly reliant on a consumer spending surge to fuel the recovery from last year’s historic recession.
“There is a clear negative impact on growth, which neutralises some of the upside risk to our 1.3 per cent second-quarter gross domestic product estimate for the euro area from a stronger [than expected] reopening [after lockdowns ended],” said Jacob Nell, head of European economics at Morgan Stanley.
He noted, however, that there was “scope for cautious optimism” later this year “as industrial activity could be bolstered from inventory rebuilding and the strong global rebound more generally, once the supply situation allows it”.
The German carmakers’ association warned last week that it expected acute semiconductor shortages to continue to affect production in the “medium term” and cut its production forecast for this year by 400,000 to 3.6m vehicles.
Industrial production declined in Germany, France and Italy in May, while Spain was the bloc’s only big economy to report higher factory output.
In contrast to the slowdown in manufacturing, economists are becoming more optimistic about the prospects for the eurozone’s larger services sector, which is benefiting from the recent lifting of Covid-19 restrictions in many countries. The spread of the Delta variant, however, is causing some concern that services could also be at risk of disruption.
“Consumers have shown little hesitation in returning to services upon reopening, as shown by high-frequency mobility data,” said Rory Fennessy, economist at Oxford Economics. “But again, the performance of services will be affected by developments with the Delta variant.”
Eurostat said non-durable consumer goods production fell 2.3 per cent in May from the previous month, capital goods production was down 1.6 per cent and intermediate goods were down 0.2 per cent. In contrast, durable consumer goods production rose 1.6 per cent.