Canadian Manufacturing

Eurozone recovery takes a hit after big fall in industrial output

Slumped by 1.1 per cent in October despite consensus outlook of 0.3 per cent gain for month

LONDON—Industrial output across the 17 countries that use the euro slumped by a monthly rate of 1.1 per cent in October in the latest sign that the region’s recovery from recession is failing to gather momentum.

The fall reported 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 per cent.

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—as well as the bailed-out economies of Greece and Portugal, and notably in Ireland, which saw output slump 11.6 per cent.

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

October’s fall follows a 0.2 per cent 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 per cent in the third quarter, that’s a concern.

The poor figures could pile further pressure on the European Central Bank (ECB) 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 per cent, 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 released the same day as the Eurostat figures, ratings agency Standard & Poor’s said the eurozone recovery will likely be “slow and uneven” and requires the support of the ECB.

It predicts that the eurozone economy will contract 0.6 per cent this year and expand by just 0.9 per cent 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.

Related Posts from the network