Industrial production in the euro area took a downturn in December 2024, contracting by 1.1 percent month-over-month, reversing November's 0.4 percent growth. This decline signals renewed fragility in the industrial sector, dragging annual production down by 2.0 percent compared to December 2023. A closer look at the monthly breakdown reveals a steep drop in capital goods output (minus 2.6 percent), indicating reduced investment in machinery and equipment, a potential red flag for future productivity. Intermediate goods production also shrank (minus 1.9 percent), suggesting weaker demand in supply chains. On the upside, non-durable consumer goods surged by 5.1 percent, pointing to resilient household spending on essentials, while energy output edged up by 0.5 percent, possibly due to seasonal demand.

Over the year, average industrial output fell by 2.0 percent in the euro area, reflecting persistent structural challenges. The annual picture remains bleak, with capital goods plunging 8.1 percent-a worrying sign of declining business investment confidence. However, non-durable consumer goods jumped 8.3 percent, hinting at some resilience in daily consumption.

Regionally, among the top 4 economies, industrial production rose in Spain (2.6 percent after minus 0.8 percent), but fell on an annual basis in France (minus 1.3 percent after minus 1.1 percent), Italy (minus 7.1 percent after minus 1.5 percent), and Germany (minus 4.0 percent after minus 3.3 percent). With persistent contractions in core industrial sectors, the euro area faces ongoing production headwinds, requiring stronger policy support and investment incentives to stimulate recovery. The latest update takes the euro area RPI to minus 4 and the RPI-P to minus 5. This means that economic activities are generally within the market consensus of the euro area economy.

Weakness is expected to persist. Forecasters see industrial production down 0.2 percent in December after a 0.2 percent increase in November. Output is expected down 2.7 percent on year.

Industrial production measures the physical output of factories, mines and utilities. The measure provided by Eurostat excludes the volatile construction subsector for which data are released a few days later.

Industrial production measures changes in the volume of output for the EMU's member states. The industrial production index provides a measure of the volume trend in value added at factor cost over a given reference period, excluding VAT and other similar deductible taxes. The preferred number is industrial production excluding construction. As with other EMU statistics, the data are provided by the national statistics offices to Eurostat (the European Union statistical agency) where it is combined to produce an overall output measure.

Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more subdued growth that will not lead to inflationary pressures. By tracking economic data such as industrial production, investors will know what the economic backdrop is for these markets and their portfolios.