Battered by the polycrisis in 2022 , the Eurozone’s industrial production ended the year with a nasty contraction of 1.1% m/m in December, Oxford Economics reports.

“The contraction was mainly triggered by German industry, in contrast to significant gains in France and Italy. The main industry groupings showed that the weakness was widespread across sectors, with only the energy subcomponent to post a gain,” Oxford Economics said in a note.

Germany had been expected to go into recession at the end of last year, but managed to just squeeze into the black but its outlook for this year remains very poor. From the Central and Eastern Europe (CEE), Hungary is the only one where economists are confident it will go into recession after its inflation rose to a 27-year high in January, with Czechia also in danger of going into the red. All the countries of the Eurozone are expecting anaemic growth this year.

The 1.1% overall contraction was slightly more than expected based on already-published national data, Oxford Economics said. November's data was revised from 1% m/m to 1.4% m/m, with the main hit coming from Germany. France and Italy, on the other hand, stood out with 1.1% and 1.6% m/m increases, respectively.

“The industrial sector is still faring relatively well, but we expect it to remain a point of weakness for the eurozone economy in the coming months,” Oxford Economics said.

The final estimate for Spain's January inflation has also been released, showing a year-on-year increase of 5.9%. This is slightly up from the preliminary estimate of 5.8% and from December's figure of 5.7%. Core inflation also increased to 7.5% y/y from 7% y/y in the previous month. However, there is a significant discrepancy with Harmonised Index of Consumer Prices (HICP) core rate, as the domestic definition includes processed food which alone contributed to about half of the print.

The energy crisis and the soaring cost of gas have been a big contributor to growth-killing inflation, but energy prices dropped further into negative territory in January, at -8.3% y/y.

“But energy’s subcomponents showed diverging patterns,” says Oxford Economics. “Fuel prices picked up 9.5% over the month, while electricity prices declined by 17.5%. In the coming months, we expect stickier services prices and stronger wage growth to make inflation fall at a much slower pace than what we have been seeing so far.”

The Eurozone's industrial sector saw a contraction in December, mainly due to a negative contribution from Germany. While France and Italy saw increases, every industrial grouping, energy was the only one that showed a contraction.

The recent improvement in confidence indicators may be due to a reassessment of European firms' expectations after excessive pessimism in recent months, but Oxford Economics says it does not believe that this change heralds a strong economic recovery.

“Despite the fall in production, the industrial sector is still faring relatively well. However, we expect it to remain a point of weakness for the eurozone economy in the coming months,” Oxford Economics said.