independent

Monday 21 April 2014

Eurozone industrial output slumps

The recovery in the eurozone is failing to gain momentum.

Industrial output across the 17 countries that use the euro slumped by a monthly rate of 1.1 % in October, official figures showed in the latest sign that the region's recovery from recession is failing to gather momentum.

The fall reported today by the EU's statistics office, Eurostat, was unexpected and affected all sectors, notably energy. The consensus in the markets was for overall output to rise by 0.3%.

Though analysts cautioned that industrial output can be volatile on a monthly basis, the figures provided further evidence that the eurozone's muted recovery has failed to gain traction in recent months. Decreases were recorded in the eurozone's two biggest economies - Germany and France. Declines were also seen in the bailed-out economies of Greece and Portugal, and notably in Ireland, which saw output slump 11.6%.

"This recovery is very, very modest," said Bill Adams, senior international economist for PNC Financial Services Group.

October's fall follows a 0.2% drop in September and means that the sector could be a drag on the fourth quarter. For an economy that only grew by a quarterly rate of 0.1% in the third quarter, that's a concern.

The poor figures could pile further pressure on the European Central Bank to do more to shore up the eurozone's recovery, especially at a time when inflation is way below target.

Though it has little room to cut its benchmark interest rate following last month's reduction to a record low of 0.25 %, the ECB has other potential tools at its disposal.

It could give banks more long-term, cheap loans so they can lend more. It could even decide to make banks pay to keep funds on deposit at the central bank - again, to encourage them to lend rather than hoard cash.

In a report on Thursday, ratings agency Standard & Poor's said the eurozone recovery will likely be "slow and uneven" and require the support of the ECB. It predicts that the eurozone economy will contract 0.6% this year and expand by just 0.9% next year.

"Whatever it opts to do, the ECB will in our view have to play the role of the patient gardener in watering those green shoots that have emerged in the eurozone since the middle of the year," said Jean-Michel Six, S&P's chief European economist.

AP

Press Association

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