Euro area industrial production (IP) printed at -2.3% m-o-m, modestly weaker than our nbelow-consensus forecast, owing to weaker-than-expected IP prints in many member nstates (though with Ireland specifically accounting for almost half of the fall).
• In the event of zero growth in August and September, these figures imply -1.2% q-o-q for Q3 as a whole, which fits with the survey evidence and implies a negative contribution to Q3 2022 GDP growth of between -0.2 and -0.3pp. Therefore, we flag downside risks to our quarterly GDP growth forecast of 0.1% q-o-q for Q3 2022.
• While this would support our view of a deteriorating growth outlook for the euro area, nwith high prices forcing consumers to hold back on spending and the ongoing energy crisis/self-imposed gas reduction resulting in demand destruction, it does not alter our view on ECB monetary policy, which is currently squarely focused on upside core ninflation risks.
• Aggregate euro area industrial production printed at -2.3% m-o-m, after weaker-thanexpected prints in most member states. This was driven largely by capital goods (-1.5pp contribution) and energy (-0.7pp contribution). In the event of zero growth in the remaining two months of the quarter, that would imply -1.2% q-o-q, which would be in line with current surveys; the latest euro area manufacturing PMI suggests quarterly growth of
roughly -1.8% q-o-q (Figure 2).
With industrial production making up approximately 20% of euro area GDP on a sectoral basis, such a negative IP print would mean a -0.24pp contribution to overall GDP. In our latest Global Economic Outlook Monthly , we revised our euro area macroeconomic forecasts, lowering our euro area GDP forecast for Q3 2022 to 0.1% q-o-q, the same as nthe ECB’s latest forecast; however, it is important to flag that risks remain skewed to the

That said, were the euro area recession to begin in Q3 2022, as opposed to Q4 2022 as nwe currently expect, this would not alter our near-term view for ECB monetary policy. The ECB Governing Council has made clear in recent commentary that they are currently focused on inflation and inflation expectations, explicitly saying at the September meeting that they intend to raise interest rates to dampen demand in order to “guard against the nrisk of a persistent upward shift in inflation expectations”.

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