Recent GDP from the EU and industrial production data from Germany, France, and Italy indicates we should begin to be very concerned about the status of the region's economy.

Let's begin with GDP, which has decelerated over the last four quarters:

The Y/Y percentage change (bottom panel) has decreased from 2.7% in 4Q17 to 1.6% in 3Q18. Over the same time, period household spending has also slowed from 1.6% to 1%. Most concerningly, export declined sharply, falling from 6.4% in 4Q17 to 2.4% 3Q18.

Here is the data in chart form:

This chart shows Q/Q rate basis. Growth is now at its lowest level since 2016.

This chart shows the data in a Y/Y format.

Today, we learned that EU industrial production dropped 1.7% in November:

All sectors of the IP market dropped. The smallest decline was energy's .6% contraction. Capital goods collapsed a very sharp 2.3%. The magnitude of the decline relative to the previous five quarters is concerning.

This isn't the first time we've heard about weak industrial production numbers from the EU. The latest report from Germany showed a sharp drop:

November 2018 (provisional): new orders in manufacturing -1.0% on the previous month (price, seasonally and calendar adjusted)-4.3% on the same month a year earlier (price and calendar adjusted)

According to the latest Markit report, German manufacturing is suffering from a third consecutive decline in new orders (emphasis added):

The performance of the sector continued to be undermined by falling inflows of new orders. December's decrease was the third in as many months and the steepest since November 2014. Surveyed businesses highlighted increased cautiousness among clients and cited subdued demand in the automotive industry. New export orders showed the steepest fall for six years, with a number of firms reporting lower sales to China.

On the broader scale, the German economy contracted in the 3Q:

Germany is the export powerhouse of the EU. But other economies are experiencing problems. French industrial production also declined at the end of last year (emphasis added):

Manufacturing output went down over the last three months (-1.0%), as well as in the whole industry (-0.9%).

Over the last three months, output decreased sharply in the manufacture of transport equipment (-3.1%). It decreased in "other manufacturing" (-0.5%), in the manufacture of food products and beverages (-0.8%), in the manufacture of machinery and equipment goods (-0.7%) and in mining and quarrying, energy, water supply (-0.4%). It diminished sharply in the manufacture of coke and refined petroleum products (-3.9%).

When viewed in the larger lens of a country experiencing internal turmoil from the Yellow Vest protests, this data becomes a bit more alarming.

Italian industry is also contracting (emphasis added):

Business conditions in the Italian manufacturing sector deteriorated again in the final month of 2018, with output and new orders continuing to fall. Although firms maintained job creation, the pace at which employment rose eased to a four-year low. Meanwhile, business confidence deteriorated further, hitting the lowest in six years.


New orders decreased for the fifth successive month in December, and at a solid pace. New business from abroad also declined, and at the same pace as total new orders.

The Italian PMI reading has been below 50 for the last three months, signifying that the country is in a contraction

Industrial production is one of four coincidental indicators used to monitor the current health of an economy. The breadth of recent declines is concerning. Additionally, the region's largest economy contracted in the 3Q18 and the region's overall growth is decelerating. This is now a very concerning development.