Societe Generale economists report that euro area industrial production experienced a sharp decline in January, falling by 1.5% month-on-month, despite positive signals from manufacturing PMIs and German new orders [1]. The downturn was primarily driven by steep drops in the pharmaceuticals and energy-intensive industries. Pharmaceutical production fell by 16% month-on-month, marking its lowest level since mid-2024 and accounting for two-thirds of the aggregate industrial output decline. This sector had previously supported output due to increased exports to the US around 'Liberation Day,' but has since weakened, even as demand for weight-loss drugs remains strong. A significant rebound in pharmaceutical output is anticipated for February [1].
Energy-intensive industries saw production decrease by 3.4% month-on-month, reaching a new record low since 2009 and standing about 13% below pre-Ukraine-war levels. These industries continue to face challenging conditions, exacerbated by recent volatility in oil and LNG markets linked to the conflict in Iran. Societe Generale notes that this sector is likely to remain a medium-term drag on aggregate industrial output [1].
Despite these setbacks, Societe Generale maintains a positive outlook for a cyclical recovery in the euro area. The recovery is expected to be supported by the German fiscal stimulus plan, increased AI-driven capital expenditures, a housing market rebound, and resilient consumer demand. The impact of US tariffs is now considered largely absorbed. Economists expect industrial production to eventually realign with the ongoing rebound in domestic demand, though sector divergences will persist [1].
CONCLUSION
The euro area industrial sector faced a notable setback in January, with pharmaceuticals and energy-intensive industries driving the decline. However, Societe Generale anticipates a cyclical recovery fueled by fiscal stimulus, technological investment, and robust domestic demand. Sector-specific challenges may persist, but overall industrial output is expected to gradually recover.