Business World

Tuesday 20 March 2018

European industrial production stagnated in July

European industrial production unexpectedly stagnated in July, adding to signs that the euro region’s export-led recovery is losing momentum.

Economists had projected a gain of 0.1pc in July, the median of 35 forecasts in a Bloomberg survey showed.

In June, output in the economy of the 16 euro nations fell 0.2pc, the European Union’s statistics office in Luxembourg said today.

A separate release showed that euro-region labour costs rose 1.6pc in the second quarter from a year earlier, the weakest since the data were first compiled in 2000.

Europe’s economy may struggle to gather strength as the global recovery cools and governments cut spending to reduce budget deficits.

The European Commission yesterday forecast a more “moderate” expansion in the second half and European Central Bank council member Mario Draghi said on September 2 the recovery remains “weak” and “fragile.”

“We expect the recovery to continue, although it’s clear that the extraordinary growth pace of the second quarter is unlikely to be maintained in the second half of the year,” said Peter Vanden Houte, an economist at ING Groep NV in Brussels.

“It’s no surprise that the export-driven growth spurt in industrial production levels off.”

In Germany investor confidence dropped more than economists forecast to a 19-month low in September, the ZEW Center for European Economic Research in Mannheim said today.

The euro dropped after the ZEW report, falling to $1.2852 at 11:18am in Frankfurt from $1.2883.

Bonds extended their gain, with the yield on the German 10-year bund down 7 basis points on the day to 2.36pc.

‘Sluggish’ recovery

Industrial output rose 7.1pc in July from a year earlier after increasing 8.3pc in June, today’s report showed.

Production of intermediate goods fell 0.3pc from June while output of durable consumer goods dropped 0.6pc and energy production slipped 0.1pc. Output of capital goods such as factory machinery rose 0.1pc in the month.

Reviving export demand helped the euro-region economy expand 1pc in the second quarter, the fastest pace in four years.

The Brussels-based commission said yesterday that growth may weaken to 0.5pc in the current quarter and 0.3pc in the year’s final three months.

So far, stronger growth hasn’t translated into faster job creation. Euro-region unemployment held at 10pc in July, the highest in almost 12 years.

German wage costs rose 0.7pc in the second quarter from a year earlier, today’s report showed. Labour costs increased 3.8pc in France, while Greek labour costs dropped 1.8pc.

International Monetary Fund Managing Director Dominique Strauss-Kahn said in an interview with Bloomberg Television on September 12 that it’s important for companies to create jobs to help bolster a European recovery.

“The second quarter was good news but temporary,” Strauss-Kahn said. “The part of the world where the risk of a sluggish recovery is strongest is certainly Europe.”


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