Nowcasting European Economic Activity Post COVID

What Does Pollution Data Say About the European Manufacturing Recovery?

July 29, 2020 – Industrial production and manufacturing output have collapsed during the COVID-19 pandemic across Europe as a result of state-imposed lockdowns. As countries start to emerge from these lockdowns, the ability to gauge where they are in the recovery is important. Because economic data typically has a 2-3 month lag, the search is on for anecdotal evidence that can give quicker results.

In our analysis, we look at pollution data as a proxy for manufacturing output across Europe. We use city-level weekly data on pollution levels from the European Environment Agency from January 2016 to June 2020 for the analysis. The level of nitrogen dioxide (NO2) is selected out of three available pollutants due to good coverage and close correlation with manufacturing activity. What we find is that the recovery is underway but there are differences in the pace of recovery between countries.

While all countries look to be recovering, few are back to the pre-pandemic levels. Some appear to be close to rebounding to the pre-pandemic levels, but caveats to the rebound are in place (Netherlands, Spain). For others, the recovery is well underway but likely still not complete (France, Germany), while in many countries the recovery is likely lagging behind (Italy, U.K., Sweden, Poland).