In April, eurozone industrial production fell slightly, down 0.1% compared to March. This represents a larger drop, with production 3% lower than a year ago. There are early signs that the decline is reaching its nadir, despite ongoing risks to the economic outlook, notably from political uncertainty. Analysts have suggested that a cautious recovery is likely in the second half of the year, offering a ray of hope for the region's industrial sector.
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Eurozone industry has been slowing since the beginning of 2023, and recent data shows no signs of an imminent recovery. While the economy in general has shown signs of improvement since the start of the year, the industrial sector remains weak.
Industrial production fell slightly in April, mainly due to declines in Ireland and Italy. Despite growing hopes of a recovery, data so far does not reflect this optimistic outlook.
Further complicating these challenges is the European Commission's announcement in early July of increased tariffs on Chinese-made electric vehicles. While the measures may initially benefit European automakers in their home market, they also raise fears of a retaliatory trade war. Even the threat of tariffs can deter investment, as the US-China trade dispute has demonstrated. While Chinese retaliation measures seem more likely to target smaller, more iconic industries, the possibility of such measures, along with uncertainties over energy supplies and a possible weakening of global demand, pose new risks to the euro area's industrial recovery.
Despite the prevalence of risks, the euro area industrial sector is showing signs of a gradual cyclical improvement. New orders have been stable for some time and the rate of decline in production has slowed compared to the end of 2023. Actual production has also tended to plateau in recent months. With euro area consumers' purchasing power improving and lower interest rates likely to have a positive impact on investment, the industrial sector could be on the brink of a recovery in these volatile times.
In Europe, high aluminum prices and low energy costs have kept aluminum smelter margins stable, and more restart announcements could lead to lower aluminum prices. The European aluminum sector was heavily affected by the energy crisis, as aluminum production requires large amounts of energy.
The German aluminum industry is navigating rough seas as it faces significant production declines in almost all subsectors in the first quarter of 2024. As Aluminium Deutschland announced in a press release, the downturn exacerbates pressure from rising imports, creating further challenges for domestic manufacturers.
