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 defence while most other sectors are contracting. High energy costs and foreign competition continue to depress traditional manufacturing. "We doubt

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 defence 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.