Industrial production in the euro area fell sharply by 2.0% m/m in September (BC: -2.8% m/m, consensus: -2.2% m/m). Today's print represents a strong offset of the positive first two months of the quarter (August data were revised up to 1.4% from +1.2% m/m, July: 1.0% m/m). In Q3, euro area industrial production rose 0.9% q/q, accelerating from +0.3% q/q in Q2.
 
Looking towards the end of the year, today's outturn gives a very negative carry-over effect for Q4. In fact, should we see a flat reading from October to December on average, industrial production would decrease by 0.9% over the last quarter of the year. Considering the ongoing drop in business confidence, we see risks as being skewed to the downside. In that context, we currently believe that euro area GDP will contract by 0.2% q/q in Q4.
 

In detail
 
At the country level, the picture was negative across the board. Italy and Germany led the way, with industrial output falling by 4.8% m/m and 2.9% m/m, respectively. Nevertheless, industrial production in Germany was not only positive in Q3 (+1.9% q/q), but it also accelerated from 1.6% q/q in Q2. At odds with this, industrial production in Italy moved slightly negative in Q3 at -0.1% q/q from +1.1% q/q. As we said in our detailed comment on Italy, this print casts downside risks to our expectations of a 0.2% GDP fall in Q3.
 
In France and Spain, the September declines were more moderate, but were nevertheless important at -1.9% m/m and -1.3% m/m, respectively. In France, industrial production rebounded to +0.9% q/q in Q3 from -0.5% q/q in Q2. Spain also improved but only very slightly from -0.8% q/q in Q2 to -0.6% q/q. Out of the last five quarters, Spanish industrial production declined 4 times by an average of -0.6% q/q.
 
As far as the peripheral countries are concerned, Ireland and Portugal experienced large falls (-3.5% and -5.8% m/m), while Greece remained broadly flat (+0.1% m/m). In the three countries, the situation has improved between Q2 and Q3, although industrial output continued to fall by -0.7% q/q (after -1.6% q/q in Q2) in Portugal. Irish and Greek industrial production bounced back sharply from -0.5% q/q to 2.6% q/q and -3.6% q/q to +2.3% q/q, respectively.
 
Looking at the breakdown by sector, the chemical sector was the only one to drop in Q3 - for a second quarter in a row - although it did mark an improvement (-0.6% q/q after -1.8% q/q in Q2). The most buoyant industrial sector in Q3 was machinery and equipment, which rose 3.4% q/q in Q3 - 2.0pp faster than in Q2. However, the most notable improvement was in the motor vehicle sector, which improved 3.6pp to 2.9% q/q.
 
Despite a very strong 4.2% m/m decline in September, the production of capital goods in the euro area accelerated to 2.7% q/q in Q3 from 1.3% q/q and was the most dynamic among the other type of goods. Otherwise, the production of consumer and non durable consumer goods declined in Q3 to -0.4% q/q from +0.7% q/q. Finally, the production of intermediate goods edged up only slightly to +0.4%q/q from -0.2% q/q, which we take as an indication of the overall cautiousness of industrial producers towards the outlook.
 

source: BarCap