Eurozone: Varoufakis discusses the 'greatest beneficiary' in 2018

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A data release from Eurostat today showed industrial production in the eurozone – referring to the 19 countries which have adopted the euro as their currency – marginally contracted by 0.3 percent month-on-month in June. The disappointing figures follow on from May’s one percent contraction.

On an annual basis, June’s industrial output levels were up by 9.7 percent, compared to the 20.6 percent increase witnessed in May.

However, the numbers are distorted by base effects from last year’s pandemic-induced slump in economic activity.

Oliver Gatland, an economist with the Centre for Economics and Business Research (Cebr), which has been analysing the figures, commented: “Improved consumer confidence amid the easing of lockdown restrictions and a shortage of many key commodities is causing demand to outstrip supply, which may add to inflationary pressures in the eurozone.

“In light of the continued disruption to manufacturers, consumers are likely to drive growth in the currency union.

“Cebr forecasts GDP growth of 4.9 percent across 2021 as a whole.”

June’s slight drop in industrial output reflects ongoing disruption to supply chains, a key challenge for the economic recovery in the eurozone this year, the CEBR concluded.

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However, supply has been sluggish in catching up with demand, with shortages of many key commodities, such as steel and semiconductors, driving the issue.

Cebr’s analysis warned: ”It is likely this will lead to inflationary pressures, as demand outstripping supply for production inputs will lead to higher costs for manufacturers.

“The headline contraction in industrial output comes amid considerable variation between eurozone member states.”

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Some countries had witnessed increased industrial output, with Malta seeing the largest growth of 5.2 percent, the report said.

However, these were outweighed by a number of other countries experiencing contractions in output, with Ireland and Portugal exhibiting the largest declines, of 4.4 percent and 2.6 percent respectively.

The report added: “Despite June’s fall in industrial output, there are some signs that the eurozone’s economic recovery is strengthening.

“Key amongst these is the vaccine rollout, with an estimated 73.1 percent of adults in the European Union having received their first COVID-19 vaccination and 62 percent being fully vaccinated.”

The elevated vaccination rate had fostered the easing of lockdown measures, allowing GDP to grow by two percent between Q1 and Q2, Eurostat’s figures indicate, beating consensus expectations and lifting the currency union out of its double-dip recession.

The report concluded: “The eased lockdown measures have also provided a boost to the retail sector, with month-on-month growth of 1.5 percent in retail sales volumes in June.

“Cebr expects the eurozone recovery to continue during Q3 and Q4, with GDP growth for the whole year forecast to reach 4.9 percent.

“There is, of course, still the lingering fear of the highly infectious Delta variant, which continues to sweep across large parts of the continent.

“And is a reminder that although positive signs are emerging, the European recovery still has a long way to go.”

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