Industrial output in the Eurozone dropped in April by 0.5%, with car production leading the negative trend and manufacturing output seeing a steady decline since the last half of 2018 when production in the automobile industry fell by 14%.
Italy’s production dropped by 17% and British car producers initiated annual factory shutdowns earlier than expected in an effort to minimise their losses in the event of a no-deal Brexit.
The German government admitted that global trade tension is growing, an admission that could be highly damaging to a country in which one in five jobs depends on exports. The German economy grew by a sluggish 0.4% in the first quarter of 2019, mainly kept afloat by domestic demand, but the second half of 2019 seems less promising.
While the German economy has maintained a growth trajectory for a decade, this year the government projected an annual growth rate that is not expected to exceed 0.5%, compared to 1.4% in 2018. German exports dropped by 3.4% in April, while imports declined by 1.1% and overall industrial production contracted by 1.9%.
This picture of deteriorating fundamentals is beginning to affect the labour market. For the first time since 2014, unemployment in Germany rose by 60,000 people in May. As the discussion turns to keeping the threat of a recession at bay, business and political leaders are revisiting their projections for a Eurozone budget.
Speaking on the sidelines of a Eurogroup in Luxembourg on 13 June, the head of the International Monetary Fund Christine Lagarde said the 19-member bloc should look at its budgetary policy with stabilisation as its main aim. The IMF warned in May that a trade standoff between the US and China could cut global growth by 0.3% in 2019, a view echoed by the OECD.
In line with this view, German Finance Minister Olaf Scholz said the Eurozone’s finance ministers must reach an agreement on a budget and financial transaction tax.