Euro zone industry staves off slump in October

Wednesday 14 December 2011 13.41
Euro zone industrial production steady after September slump
Euro zone industrial production steady after September slump

Industrial production in the euro zone steadied in October after nosediving in September, supporting forecasts that an oncoming recession will likely be mild, although the improvement may prove temporary.

Output at factories across the 17-country single currency area fell 0.1% in October from September, European Union statistics agency Eurostat said, slightly below the expectations of economists, who had predicted that industrial output would be unchanged from the previous month.

Euro zone GDP grew just 0.2% in the third quarter and most economists expect it to contract in the fourth and also in the first three months of next year, sending the bloc back into recession after its two-year recovery from the worst global financial crisis since the 1930s.

The euro zone's own crisis with government debt has scared off investment and eaten into business confidence, particularly since August when investors intensified their scrutiny of the bloc's problems, dumping banking stocks and pushing up borrowing costs for Italy and Spain to potentially unsustainable levels.

Fears that a euro zone break-up or a series of defaults could unleash the kind of financial chaos that followed the collapse of US investment bank Lehman Brothers in 2008 are also worrying the economy.

Europe's factories are feeling the worst of that stress, while government spending cuts and job losses are depriving companies of demand for goods and crushing exports.

The European Central Bank cut its main interest rate back to a record low of 1% last week to try to boost the economy, and economists expect further cuts early next year. But an EU leaders' summit last week failed to reassure investors that the euro zone is any closer to resolving the debt debacle.

The euro zone's monthly contraction looked favourable compared to the 2% slide in output in September, the biggest fall since February 2009, when the economy was weakened by the global financial crisis.

Germany, the bloc's biggest economy, surprised by posting a 0.8% increase in factory output, after tumbling 2.9% in the previous month. That could provide some support for economists and policymakers who say the euro zone's economy - which generates about 16% of global gross domestic product - is slowing down, but not heading for a plunge.

Indeed, one survey showed German analyst and investor sentiment rose unexpectedly this month, ending a run of nine monthly declines. France, the euro zone's other leading economy, saw its industrial output unchanged after a 2.2% fall in September.

Italy and Spain, where unemployment is the highest in the euro zone at 20% of the working population, registered falls of 0.9% and 1.1% in industrial production in October, respectively. Output fell 0.7% in the Netherlands.

The negative trend was also clear in Eurostat's reading of industrial production on an annual basis. Output rose 1.3% in the area in October, compared to a 2.2% increase in September, and notched up its fourth consecutive month of falls.