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Latest sign Europe’s powerhouse economy sputtered late in 2018

German industrial production was much worse than expected in November, underscoring the headwinds the eurozone’s powerhouse economy faced at the end of 2018.

The wide-ranging economic measure was down 1.9 per cent from October, according to the Federal Statistics Office (Destatis). It was the third month in a row of decline and much worse than the 0.3 per cent uptick forecast by economists in a Reuters poll.

The fall is another indicator of the cooling in the eurozone economy, as global trade battles and political uncertainty weigh on sentiment.

Industrial production was down 4.7 per cent from the same month a year ago, according to Destatis.

Production in industry, which excludes energy and construction, fell by 1.8 per cent from the previous month. The production of capital goods also fell by 1.8 per cent and the production of intermediate goods, items that will be turned into a final product, fell by 1 per cent.

Consumer goods tumbled by 4.1 per cent. Energy production declined by 3.1 per cent and construction products fell by 1.7 per cent.

Eurozone economic forecasts fell again on Monday after a survey of economists by Consensus Economics found that GDP is expected to grow just below 1.6 per cent this year, 0.4 percentage points lower than an already conservative estimate from March.

Germany is expected to grow more slowly than France, expanding below 1.5 per cent in 2019, according to the Consensus Survey.

Group hit by slowing consumption in China and emission regulations in Europe

French car parts manufacturer Valeo is planning cost cuts as it anticipates a tough 2019 following a year when its share price more than halved.

“The volatility of the market is higher today than it has ever been in the past and we are acting as if things will be more challenging this year,” Jacques Aschenbroich, chief executive, told the Financial Times.

Valeo, one of the biggest listed suppliers to the car industry by revenue, suffered from slowing consumption in China and changing emission regulations in Europe that resulted in two profit warnings and knocked 59 per cent off its share price in 2018.

Despite announcing a €100m cost-savings plan in response to challenging “market conditions” last year, Mr Aschenbroich said the group is in the “budget phase” for an additional cost-savings plan, the scale of which he declined to quantify.

“There are lots of uncertainties today in the market . . . and in some of the raw materials prices, so it is too early to anticipate,” he said. 

Mr Aschenbroich said he is confident that despite the short-term pain, Valeo has the right long-term strategy, which is concentrating on developing their strategy of supplying ever more advanced technology to the world’s largest car companies.

“We’ve been able to position ourselves in very fast-growing market segments, in the electrification of the power-train, in the driving assistants, and for all of our business groups we have real growth potential.”

He added: “I don’t think we should change our strategy [ . . .] in the automotive industry, you work for the longer-term.”

Last year was a tough year for the car industry in general, which was hurt by a slowdown in China, the world’s largest car market.

In November the Chinese car market suffered its steepest monthly fall in more than six years and was heading for its first annual decline in three decades.

It was dragged down by the removal of government subsidies on vehicle purchases, weaker consumer sentiment in a slowing Chinese economy, and a deepening trade war with the US. 

“If you outperformed in autos [in 2018], then you deserve a medal,” said Max Warburton, an automotive analyst at Bernstein.

However, despite the sector’s widespread underperformance, he said Valeo’s fortunes last year were particularly worrying: “The nature of the collapse of Valeo has been a new experience — it’s been so slow and so painful and so enduring.”

Chris McNally, an autos analyst at Evercore, said Valeo had its own particular set of problems: “Generally suppliers [such as DLPH and Faurecia] were down 20 per cent to 60 per cent last year.

“But on top of that Valeo has a lot of issues above and beyond what others have. Others had earnings revisions of about 15 per cent on average, Valeo was about 40 per cent over the year.”

Mr McNally is particularly concerned by what he says is a lack of clarity around Valeo’s drop in revenue. “Currently, there is a complete break down between order book and revenue. And it’s a specific Valeo phenomenon.”

Valeo’s Mr Aschenbroich argued that along with the challenging market conditions in Europe and in China, that “part of the explanation” for the revenue falls “comes from the fact that we have been confronted with some production start delays”. 

But looking back at a particularly difficult year, he sees brighter times ahead: “While the environment in China remains difficult with production falling sharply in recent months [ . . .] the situation in Europe is in the process of normalisation.”

Mr Aschenbroich also expects to reap the rewards of big investments in self-driving cars and the sensors and software that drive them.

He said: “From 2019, the start of production of numerous contracts based on the group’s innovations . . . will lead to the improvement of outperformance over at the car market throughout the year.”