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Balmy European Winter Helps Industrial Production


With winter not fully upon us, European industrial production has benefitted from lower energy prices. The mild weather has led economists to predict less dire economic scenarios, where recession fears have receded. November’s industrial production highlights the economic benefit realized from this winter’s mild weather.

In France, industrial production gained 2% month-over-month compared to 0.8% survey expectations. An increase of 90.6% in the production of petroleum products/coke was partly responsible for this gain.  Machinery & Equipment Goods and Other Manufacturing saw major increases as well.

Germany also saw a monthly gain in industrial production output for November. While this figure actually represented a -0.1% month-over-month surprise to the downside, nevertheless it still showed German industrial production growing at an annualized rate of 2.4%. Intermediate Goods and Capital Goods output both contributed to this gain. Germany’s “energy intensive” industries output was 0.2% greater in November than the month prior.

Mother Nature’s intervention in a normal cold European winter is record-breaking. In the illustration below, I show temperatures across Europe on January 1, which hit record highs for many countries.

credit: @scottduncanwx

With temperatures across the entirety of Western Europe higher than usual this winter, natural gas demand is down 20-30% across the continent through November.

Credit: FT, ICIS

Manufacturing is the second-largest user of natural gas in Europe with the chemical and petrochemical sectors the most natural-gas intensive industries (helping explain the earlier noted growth in this sector of French industrial production).

credit: FT, Rhodium Group, Eurostat

As would be expected, double-digit declines in natural gas demand have resulted in massively falling prices with the Netherlands TTF Natural Gas Future having fallen almost 78% since the end of August.

A continued mild winter bodes well for Europe’s economic prospects in 2023, as natural gas supplies are still strangled by Russia’s war in Ukraine.

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