Eurozone Industrial Production For May Will Surprise Downward Amid Chips Crisis

Today, Eurostat will release the first estimate of Eurozone Industrial Production (IP) for May. According to the Bloomberg consensus, on a MoM basis, Eurozone IP is expected to decline by 0.3%e (v +0.8% in April). However, regional surveys and my proxies point to a downward surprise.

Regional Surveys Point To A sharp Decline of Eurozone Industrial Production

Regional surveys showed that industrial production declined in the three biggest economies in May. According to Destatis, German industrial output — comprising production in manufacturing, energy and construction — decreased 0.3% MoM in May. Excluding construction (measure used in Eurozone data), the drop was even larger at -0.6% MoM. Over the same period, French Industrial production contracted by 0.3% MoM while it fell by 1.5% MoM in Italy.

Car Production Suffered From Semiconductor Shortages

One of the key factor behind the drop of industrial production is the weakness in car production. Semiconductor shortages intensified and affected car automakers worldwide leading to shutdown of several factories. According to Bloomberg, chip lead times, the gap between ordering a semiconductor and taking delivery, increased by seven days to 18 weeks in May (the longest wait time since Susquehanna Financial Group began tracking the data in 2017).

In the meantime, the European Commission published a quarterly survey, which highlighted that 21.7% of manufacturing firms in the euro area reported a lack of equipment as a factor limiting production in 2Q21 (up from 11.8% in 1Q21).