Capital Economics analyst Jack Allen-Reynolds says that although euro area
industrial output has shown resilience since the Iran conflict erupted, the
21-country currency area faces a structural imbalance. Industrial activity was
already in decline before the pandemic and now shows a pronounced K-shaped
divergence: output is rising in high-tech and defense while most other sectors
are contracting. High energy costs and foreign competition continue to depress
traditional manufacturing. "We doubt any recent EU trade-policy tweaks will
produce material change," he said.
