European industry is increasingly worried about its prospects

Industrial confidence, an indicator compiled by the European Commission, has fallen to a 17-month low this month, and concerns about energy shortages and endless supply chain disruptions are weighing heavily on the sector. 

Of the four largest economies, only the figures for Germany were above the regional fingerprint, and looking at the broader currency area of 19 members, only three other countries – Austria, Finland and the Netherlands – saw managers more optimistic than the eurozone average.

Economic optimism of producers compared to the eurozone average

While consumer inflation fears are still elevated, expectations of selling prices at companies have declined this month. Manufacturers who have consistently predicted price increases since the coronavirus pandemic began now say they will weaken over the next few months. 

While the euro zone rose a stellar 0.7% in the second quarter, economists and markets fear that rising inflation and a possible shutdown of Russian energy threaten to plunge the region into recession. Companies are already suffering from supply bottlenecks that began during the pandemic and have been exacerbated by the war in Ukraine. 

These concerns are evident in the European Commission's figures, which are based on surveys by sector and country. Asked about the barriers to production, production managers in the eurozone's two-thirds identified lack of demand and shortages of materials as the main factors that affect their ability to operate at full capacity. 

Note: *Manufacturers in Slovakia have indicated "demand" and "material" as their main obstacle in equal quantities

Looking at current exports, order books are slowly declining from an annual high. However, the industry's outlook for overseas sales appears to have improved as the euro weakens. Expectations of export orders over the next three months, which fell sharply after Russia invaded Ukraine in February, nearly reached the long-term average for the region.