Germany and France, the European unions largest economies, have seen an unexpected decrease in industrial output.
The Germans output dropped by 1.6% last month, meanwhile, production in France fell by 4.7%.
Despite the COVID crisis, the output of European industrial sectors has remained relatively stable, however, the third European wave may be the cause of the industrial contraction.
Europe has seen the third wave of COVID sweep the area as cases have increased, some say this may have been a result of the vaccine speculation during the time.
Nevertheless, the third wave has likely resulted in a decrease in confidence, meaning European products are in lower demand as economic agents spend less.
Consequently, European firms have likely toned down output following this decreased demand.
Also, the third wave of COVID means the public health of Europeans has decreased, and that has likely yielded an increase in the workers who are off sick.
This further reduces European output as the output per person within the labour force has effectively decreased temporarily, thus illustrating the unexpected change.
Also, the French drop in output was largely carried by an 11.4% fall in production from the automotive industry, a likely result of the chip shortages.
Germany’s economy suffered a reduction in investment, illustrating the decreasing confidence of economic agents.
Nevertheless, European economies, especially Germany, are optimistic about the road ahead.
The German economic ministry believes that this reduction in output is a small hiccough in the industrial sector and they expressed their optimism about momentum picking up in the coming months.
Despite the uncertainty around the COVID-19 Pandemic, if vaccination rollout efforts are successful in Europe, the region will likely see a rebound in economic activity as well as prosperity.
This is because vaccinations eliminate the lack of confidence around the virus as they decrease the public health risks of going out and spending.
Therefore, an increase in confidence of economic agents leads to additional spending causing a boost in aggregate demand.
So, the German Economic ministry is right to believe that in the coming months the German economy will see growth due to the rise in confidence of European economic agents.
The fall in output that European industries have seen in recent months is likely a temporary setback and the positives of a successful vaccine rollout will overcome this issue, the European road ahead is one likely filled with economic prosperity.
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