Bloomberg News

Euro-Area Factory Output Expands Faster Than Forecast: Economy

December 16, 2013

An Employee Works at a ThyssenKrupp AG Factory in Hamburg

Manufacturing output in Germany, the euro area’s largest economy, reached a 30-month high in December. An employee tightens a bolt with a spanner on a elevator truss during assembly at the ThyssenKrupp AG factory, in Hamburg, Germany, on Tuesday, Dec. 10, 2013. ThyssenKrupp AG, Germany's biggest steelmaker, is seeking to focus on its elevator, auto-parts and marine services business after selling a plant in Alabama. Photographer: Krisztian Bocsi/Bloomberg

Euro-area factory output grew at a faster pace than economists forecast in December, led by Germany, as the currency bloc continued its gradual recovery from a record-long recession.

An index based on a survey of purchasing managers in the manufacturing industry increased to 52.7, a 31-month high, from 51.6 in November, London-based Markit Economics said in a statement today. That’s above the estimate of 51.9 in a Bloomberg News survey of 35 economists. In China, manufacturing output unexpectedly fell to a three-month low, a separate report showed.

“We expect euro-zone GDP momentum to strengthen as we enter 2014, reflecting a firming export impulse, more favorable corporate fundamentals and pent-up demand for capital goods,” said Marco Valli, chief euro-area economist at UniCredit SpA in Milan. “A slow improvement in the labor market, a further easing of fiscal tightening and very low inflation will also help push average GDP growth toward 1.5 percent over the course of next year.

The European Central Bank left its main refinancing rate at 0.25 percent on Dec. 5, based in part on its forecast for the economy to ‘‘recover at a slow pace’’ during the next two years. The ECB sees euro-zone gross domestic product falling 0.4 percent this year and rising 1.1 percent in 2014.

Chinese Output

The euro extended gains against the dollar after today’s euro-area data were released, trading at $1.3763 at 11:12 a.m. in Brussels, up 0.2 percent on the day. The Stoxx Europe 600 Index was up 0.6 percent.

Markit’s gauge of euro-area services output fell to 51, a four-month low, from 51.2 in November, while the composite index for both industries improved to 52.1 from 51.7.

The encouraging economic news from Europe contrasted with China, where a manufacturing index unexpectedly declined as output gains eased and employment weakened, suggesting the world’s second-largest economy is vulnerable to a slowdown.

The preliminary reading of 50.5 for a Purchasing Managers’ Index released today by Markit and HSBC Holdings Plc compares with 50.8 in November and the 50.9 median estimate in a Bloomberg survey.

Markit’s U.S. manufacturing index probably increased to 55 in December from 54.3 a month earlier, a separate Bloomberg survey (ECONMUS) shows. The data will be published at 2 p.m. London time.

‘Strengthening of Demand’

In the euro area, ECB President Mario Draghi said on Dec. 5 that output growth should continue ‘‘in particular owing to some improvement in domestic demand supported by the accommodative monetary policy stance.” Expansion “should, in addition, benefit from a gradual strengthening of demand for exports,” he said.

Euro-area exports rose 0.2 percent in October to 159 billion euros ($219 billion) from a month earlier, while imports fell 1.2 percent to 144.5 billion euros, the European Union’s statistics office in Luxembourg said today.

Manufacturing output in Germany, the euro area’s largest economy, reached a 30-month high in December, while in France, the currency bloc’s number-two economy, production slumped to a seven-month low, according to Markit.

“It’s the unbalanced nature of the upturn among member states that is the most worrying,” Chris Williamson, chief economist at Markit, said in today’s report. “France looks increasingly like the new ‘sick man of Europe,’ as a second successive monthly contraction may translate into another quarterly decline in GDP, pushing the country back into a technical recession.”

Debt Crisis

While the euro-area economy is gradually recovering, with 0.2 percent growth forecast for the fourth-quarter, the currency bloc is still struggling with the legacy of the debt crisis, including an unemployment rate of 12.1 percent in October.

RWE AG, Germany’s second-largest utility, said on Nov. 14 that profit next year will almost halve on the weak outlook for power prices, and that it plans to cut about 10 percent of its jobs.

Car sales provide evidence of the pick-up in manufacturing, rising in October for a second month for the first time since 2011. November data for European car sales are due tomorrow.

Part of this trend, Hyundai Motor Co., South Korea’s largest automaker, is targeting sales gains in Europe next year as a new version of the i10 small car adds to a regional car-market revival. Allan Rushforth, chief operating officer of Hyundai’s Europe division, said on Dec. 10 that there were “a number of new opportunities” for 2014.

“Europe seems to be turning the corner,” the IMF’s Managing Director Christine Lagarde said on Dec. 10. The International Monetary Fund forecasts growth of 1 percent for the euro area next year.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

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


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