September 23, 2019 / 8:08 AM / a month ago

Euro zone's industrial pain mostly domestic: ECB

FILE PHOTO: Sign of the European Central Bank (ECB) is seen ahead of a news conference on the outcome of the Governing Council meeting, outside the ECB headquarters in Frankfurt, Germany, March 7, 2019. REUTERS/Kai Pfaffenbach

FRANKFURT (Reuters) - Domestic factors may have caused most of the recent drop in euro zone industrial production, the European Central Bank said on Monday, confounding some views that the bulk of the bloc’s difficulties are imported.

With global demand sagging due to a trade war between China and the United States, the euro zone’s vast industrial sector has been in recession for most of the past year and a half, forcing the ECB to unleash even more stimulus to prop up the bloc.

The ECB said that in the first half of 2018 global developments were indeed the main cause of industry’s troubles but domestic factors, to a great extent in Germany, have been the main culprit since July 2018.

“Between July 2018 and June 2019 the global trade factor and all factors associated with developments in China, the United Kingdom and United States explained 37% of the fall in euro area industrial production growth, while domestic factors contributed 63%,” the ECB said in an Economic Bulletin article.

Among the domestic causes, the ECB singled out difficulties in the German car industry, including its struggle in adjusting to a new emissions testing scheme, which caused supply disruptions.

A ban on diesel cars in some places also appears to be shifting consumer habits, it added.

“The more recent increase in the negative contribution of domestic factors to euro area industrial production growth is due to lower industrial output growth in Germany, possibly linked to the weaker consumption growth recorded in this country in the second quarter of 2019,” the ECB added.

Reporting by Balazs Koranyi; Editing by Toby Chopra

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