RO: Industrial output down in July

Industrial production in July fell significantly below expectations, registering a monthly contraction of 3.4%, resulting in an annual decline of 3.9%. This reading is below the Bloomberg consensus of +0.6% y/y and our estimate of -0.5% y/y. Romanian manufacturing production remains weak, impacted by low demand, with no signs of recovery. Confidence indicators and expectations for GDP growth in the Eurozone, a key trading partner for manufacturing industry, suggest that this may be another disappointing year for industrial production.

We revise our full-year 2024 forecast to -0.7% from +0.3% previously considering todays reading. This could turn out to be the second consecutive year of negative growth rate for industrial output after -2.5% in 2023. Confidence indicators look rather weak in recent months, but the expectation components seem to show that firms remain optimistic. We expect a better performance in 2025, in line with the slight acceleration expected for the economic growth in Eurozone as well as better domestic demand expected for local manufactured goods.

Manufacturing fell -4.6% m/m and -4.5% y/y, mining grew +1.2% m/m and +2.2% y/y, while energy production was up +3.1% m/m but declined by -1.5% y/y in July.

Taking a quick look at the industries included under the manufacturing umbrella, we can draw the following conclusions: i) Automotive industry has been the main contractionary force in the annual terms in recent months, clearly affected by lower demand from Germany. Romania has strong ties to German car manufacturing as several car components are produced in Romania. ii) Chemical industry has also been posting quite weak numbers recently. High external competition, weak demand both internally and from abroad as most likely the reasons behind it. iii) Food industry and manufacturing of furniture has been doing consistently well in the last few months and helped cushion the negative impact form automotive and chemical industry.

BCR Romania Manufacturing PMI remained in the contractionary territory in August with a reading of 48.4, lightly up from 47.8 in the previous month. The output component also showed a negative evolution in monthly terms. Most of the problems reported by the firms included in the survey stem from weak demand both internal and external.

Manufacturing confidence was roughly unchanged in August vs July according to the Economic Sentiment Indicator (ESI) as local managers reported weaker order books along with better production expectations and inventories remained flat. Quarterly ESI survey shows capacity utilization in manufacturing at 68.0% in 3Q24 vs 67.8% in 2Q24 and below the long-term average of 77.0%.

Manufacturing component of the Ifo Business Climate Index for Germany fell in August. HCOB Eurozone Manufacturing PMI remained in the contractionary territory in August, with particularly low figures for Germany and France.