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Grim output data fuels EU recession fears

Industrial output falls in the euro zone's three largest economies in September strengthened the view that the bloc is already in a recession that may be deeper than expected and will last through most of 2009.

France's output drop of 0.5% looked almost healthy compared with the record declines of 2.1% in Italy - which also reported today - and 3.6% reported on Friday by Germany, the area's largest economy.

One economist said the latest figures suggest the euro zone ground to a halt earlier than previously thought and there is a possibility of at least five consecutive quarters of negative growth.

The three nations make up more than two-thirds of the euro zone economy.

Output in both France and Italy was weighed down by a sharp decline in car manufacturing - a sector hard hit by the credit crunch and the downturn in consumer demand.

The 0.2% euro zone growth contraction between April and June was the first since the monetary union was launched, and even before the latest output figures, analysts polled by Reuters were forecasting a third quarter contraction of the same size.

Analysts define recession as two consecutive quarters of negative growth.

Italy's output drop was the steepest since December 1998, pointing to a recession that analysts said could prove long and deep for an economy which has been one of the euro zone's most sluggish growth performers for at least a decade.

On Wednesday, Eurostat will publish industrial output data for the 15-nation bloc, which now looks likely to come in below the -1.3% forecast in a Reuters survey last week.

France's 0.5% output drop was broadly in line with expectations but followed a 0.4% decline in August.

Germany's 3.6% output drop reported on Friday was the largest for almost 14 years, but followed a 3.2% jump in August.