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Eurozone Industrial Production Stalls in June as Capital Goods Weigh
Eurozone industrial production lost momentum in June, slowing from 0.3% to 0.0% m/m, while EU output eased from 0.3% to 0.2%. On annual basis, production was only 0.1% higher y/y in Eurozone and 0.6% higher in EU, underscoring that industrial recovery remains subdued despite recent improvement in survey indicators. Headline Eurozone reading also fell slightly short of expectations for a 0.1% monthly increase.
Breakdown showed considerable divergence across sectors. In Eurozone, intermediate goods fell -0.8% m/m and capital goods dropped -1.4%, offsetting gains of 1.5% in energy, 0.3% in durable consumer goods and a strong 3.0% rise in non-durable consumer goods. EU showed similar pattern, with intermediate goods down -0.7% and capital goods down -0.9%, while energy rose 1.0%, durable consumer goods 0.9% and non-durables 2.5%. At country level, Denmark led gains at 5.4%, followed by Croatia at 5.2%, while Luxembourg posted a sharp 10.7% decline.
Overall, June figures suggest Europe’s industrial sector is stabilizing rather than entering a convincing rebound. Weakness in capital and intermediate goods is particularly notable because it points to continued softness in investment- and production-chain demand, even as consumer-related categories performed better. That contrasts with stronger July PMI readings and suggests hard data are still lagging improvement in business surveys, leaving ECB with a mixed growth backdrop rather than clear evidence of either renewed industrial weakness or broad-based acceleration.
Data Summary
| Indicator | Actual | Expected | Previous |
|---|---|---|---|
| Eurozone Industrial Production m/m | 0.0% | 0.1% | 0.3% |
| Eurozone Intermediate Goods m/m | -0.8% | — | -0.2% |
| Eurozone Energy m/m | 1.5% | — | 2.6% |
| Eurozone Capital Goods m/m | -1.4% | — | 0.5% |
| Eurozone Durable Consumer Goods m/m | 0.3% | — | -1.3% |
| Eurozone Non-Durable Consumer Goods m/m | 3.0% | — | 3.3% |
Key Takeaways
- Eurozone industrial production slowed from 0.3% to 0.0% m/m in June, slightly missing expectations for 0.1% growth.
- EU production also lost momentum, easing from 0.3% to 0.2% m/m.
- Annual growth remained weak, at just 0.1% in Eurozone and 0.6% across EU.
- Eurozone breakdown was uneven: capital goods fell -1.4% and intermediate goods dropped -0.8%, while energy rose 1.5%.
- Non-durable consumer goods were strongest category, rising 3.0% m/m, while durable consumer goods gained 0.3%.
- June data suggest industry is stabilizing rather than entering a convincing recovery, with hard production data still lagging recent improvement in Eurozone PMI surveys.
UK GDP Beats June Forecast with 0.4% M/M Growth as Services Keep Economy Moving
UK growth slowed in Q2, but economy finished quarter considerably better than June forecasts had suggested. GDP expanded 0.4% q/q after 0.6% growth in Q1, matching expectations, while annual growth accelerated from 0.9% to 1.2%, beating 1.1% consensus. GDP per head also increased 0.4% q/q, leaving it 1.0% higher than a year earlier. Services remained engine of expansion, growing 0.5% q/q over quarter, alongside a 0.3% rise in construction, while production stagnated.
More encouraging signal came from June. GDP rebounded from 0.0% to 0.3% m/m, versus expectations for a 0.1% decline, reversing some concern that growth was fading sharply after strong start to year. But improvement was concentrated in services, which rose 0.4%, while production contracted -0.2% and construction slipped -0.1%. Manufacturing weakened further from a revised -0.2% to -0.5%, showing that stronger headline GDP still masks considerable divergence across economy.
Overall, the report shows UK economy lost some momentum from Q1 but avoided sharper slowdown feared into quarter-end. Stronger June growth suggests a firmer handoff into Q3, although dependence on services and continuing weakness in manufacturing argue against describing recovery as broad based. For BoE, resilience in headline activity gives policymakers somewhat more room to stay focused on inflation, but GDP data alone are unlikely to materially change near-term policy stance.
Q2 GDP Summary
| Indicator | Actual | Expected | Previous |
|---|---|---|---|
| GDP q/q Q2 | 0.4% | 0.4% | 0.6% |
| GDP y/y Q2 | 1.2% | 1.1% | 0.9% |
| Services Output q/q Q2 | 0.5% | — | 0.8% |
| Production Output q/q Q2 | 0.0% | — | 0.2% |
| Construction Output q/q Q2 | 0.3% | — | — |
June GDP Summary
| Indicator | Actual | Expected | Previous |
|---|---|---|---|
| GDP q/q Q2 | 0.4% | 0.4% | 0.6% |
| GDP m/m Jun | 0.3% | -0.1% | 0.0% |
| Services Output m/m Jun | 0.4% | — | 0.1% |
| Production Output m/m Jun | -0.2% | 0.0% | -0.7% |
| Construction Output m/m Jun | -0.1% | — | -0.8% |
| Manufacturing Production m/m Jun | -0.5% | -0.3% | -0.2% |
Key Takeaways
- UK GDP slowed from 0.6% to 0.4% q/q in Q2, exactly matching expectations, while annual growth strengthened from 0.9% to 1.2%, beating 1.1% forecast.
- June GDP surprised clearly on upside, accelerating from 0.0% to 0.3% m/m against expectations for a -0.1% contraction.
- Services remained main growth engine, rising 0.5% q/q in Q2 and 0.4% m/m in June.
- Growth was uneven beneath headline, with production flat in Q2 and down -0.2% m/m in June, while manufacturing fell -0.5%.
- GDP per head rose 0.4% q/q and 1.0% y/y, adding a more constructive dimension to headline growth.
- Overall picture is of UK economy slowing rather than stalling, with stronger June activity providing a firmer handoff into Q3.
- For BoE, data modestly support patience by showing economy is holding up better than feared, though weak production prevents a broad-based growth signal.
RBA’s Kent Says Tightening Is Working, but Policy Restraint Remains Hard to Gauge
RBA Assistant Governor Christopher Kent said in a speech today that monetary policy is “somewhat restrictive” and that tightening delivered earlier this year is working through economy. He pointed to higher borrowing costs and mortgage payments, weaker established housing market, stronger Australian Dollar and slowing aggregate demand. Importantly, Kent stressed that this slowdown is deliberate, saying it is “intended and is needed to bring inflation back to target.” He added that estimates of nominal neutral rate, while imprecise, also support assessment that current policy stance is restrictive.
At same time, Kent cautioned that cash rate alone does not determine how restrictive financial conditions have become. Housing appears to have softened “by somewhat more than the recent increase in interest rates would imply,” potentially making conditions tighter than otherwise. But global forces are working in opposite direction. Resilient demand driven by AI-related investment and higher offshore yields linked to rising public debt could make Australian financial conditions “less restrictive than otherwise,” complicating Board’s assessment of how much restraint is actually being delivered.
Comments reinforce RBA’s current policy optionality rather than signaling tightening cycle is finished. Kent clearly acknowledged that higher rates are slowing demand as intended, but he stopped short of saying policy is sufficiently restrictive. Instead, Board will continue “carefully considering the wide range of factors that influence financial conditions and the restrictiveness of monetary policy” as it updates outlook. That fits this week’s hawkish hold: RBA sees tightening working, but still lacks enough certainty over effective restraint to rule out another hike if inflation risks re-emerge.
Key Takeaways
- RBA Assistant Governor Christopher Kent said monetary policy is “somewhat restrictive” and that tightening earlier this year is working through economy.
- Higher borrowing costs, mortgage payments, softer housing, stronger Australian Dollar and slower aggregate demand all point to tighter financial conditions.
- Kent stressed demand slowdown is “intended and is needed to bring inflation back to target,” suggesting RBA does not yet view weaker activity as excessive.
- Housing may be making conditions more restrictive than cash rate alone implies, after weakening more than recent rate increases would suggest.
- Resilient global demand from AI-related investment and higher offshore yields are pulling in opposite direction, potentially making Australian conditions “less restrictive than otherwise.”
- Remarks reinforce RBA’s policy optionality: tightening is working, but uncertainty over effective restraint means Board is not yet declaring tightening cycle complete.