Bloomberg News

Euro-Area Industrial Production Unexpectedly Rose in August

October 12, 2011

(Updates with comment from economist in eighth paragraph.)

Oct. 12 (Bloomberg) -- European industrial production unexpectedly rose for a second month in August as increasing output in countries from France to Portugal and Italy offset a German decline.

Production in the 17-nation euro area advanced 1.2 percent from July, when it rose 1.1 percent, the European Union’s statistics office in Luxembourg said today. That’s the biggest gain since November 2010. Economists forecast a drop of 0.8 percent, the median of 32 estimates in a Bloomberg News survey showed. In the year, output increased 5.3 percent.

Europe’s export-led recovery is losing some momentum as governments struggle to contain the region’s 19-month fiscal crisis just as global demand falters. Euro-region manufacturing output contracted in September, economic confidence plunged to the lowest in almost two years and the International Monetary Fund lowered its growth forecasts for this year and next.

“We’ll still have a relatively robust third quarter in the euro region,” said David Milleker, chief economist at Union Investment GmbH in Frankfurt, one of two economists in the Bloomberg survey who forecast an increase. “Still, pressure is increasing and that’s obviously a reason for concern. We have a series of negative factors.”

The euro extended gains after the report, trading at $1.3776 at 1:18 p.m. in Brussels, up 1 percent on the day. The Euro Stoxx 50 Index advanced as much as 1.4 percent.

German Decline

In the 27-member EU, output rose 0.9 percent from July, today’s report showed. Among the member states for which data are available, production rose in 12 and dropped in 10. Portugal had the highest monthly gain.

In Germany, Europe’s largest economy, which has powered the region’s economic expansion, industrial output dropped 1 percent from July, when it rose 3.9 percent. In France, the region’s second-biggest economy, production advanced 0.6 percent, while Spain reported an increase of 1.3 percent. In Ireland and Italy, output also rose in that period. Greece reported a drop of 1.4 percent.

Today’s report “is a pleasant surprise and may reduce fears that euro-zone economic activity might have contracted in the third quarter,” said Martin van Vliet, an economist at ING Groep NV in Amsterdam. Still, “the risk of a recession, later down the road, remains high.”

‘Standstill’

The economy may struggle to gather strength after expanding just 0.2 percent in the second quarter. Commerzbank AG said in an e-mailed note last month that the region “looks set to slip into recession” over the coming months, when forecasting the economy to stall in 2012.

The European Commission on Sept. 15 cut its euro-region growth forecasts for the second half and warned the economy may come “close to standstill at year-end.” The IMF in Washington on Sept. 20 also lowered its growth projections for the euro region, Germany and France for this year and next.

Daimler AG, the world’s largest maker of heavy-duty vehicles, said on Sept. 19 it expects truck sales to keep growing, even as global growth falters. German rival MAN SE is monitoring the impact on demand from Europe’s crisis.

Euro-region output of capital goods jumped 2.1 percent from July, when it rose 3.2 percent, the statistics office said. Production of intermediate goods and non-durable consumer goods rose 1.7 percent and 1.1 percent, respectively. Energy output failed to grow after rising 0.1 percent in July.

‘Systemic Dimension’

The European Central Bank on Oct. 6 kept its benchmark interest rate at 1.5 percent and extended liquidity measures to support banks. President Jean-Claude Trichet, who will be replaced by Italy’s Mario Draghi at the end of the month, said he sees “intensified downside risks” to the growth outlook.

“The crisis has reached a systemic dimension,” Trichet told European lawmakers in Brussels yesterday. “Sovereign stress has moved from smaller economies to some of the larger countries.”

European officials are seeking to meet an end-of-month deadline set by French President Nicolas Sarkozy to get to grips with the crisis, which has pushed Greece close to default. Governments are working out how to scale up the European Financial Stability Facility’s firepower without requiring another round of parliamentary approvals.

Trichet along with U.S. Treasury Secretary Timothy F. Geithner this week is scheduled to attend a Group of 20 finance chiefs meeting in Paris as investors grow increasingly concerned that the fiscal crisis will hurt global growth.

“The outlook for the world’s major economies is continuing to darken,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in an e-mailed note before today’s report. “Many major western economies are teetering on the brink of recession as they struggle to repay inflated levels of debt.”

--Editors: Patrick Henry, Andrew Clapham

To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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