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August 13, 2009

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Production surprisingly declines in euro zone

HOPES that Europe's crucial manufacturing sector might be poised to recover were dampened yesterday when official figures showed industrial production unexpectedly fell in June.

Figures from the European Union's statistics office Eurostat showed that industrial production in the 16 countries that use the euro dropped 0.6 percent in June from the previous month. That fell short of expectations for a modest 0.3 percent rise. June's decline offset an equivalent increase recorded in May.

That means euro zone industrial output fell 3 percent in the second quarter of 2009 from the previous three month period. Though sizable, the drop was much less than the 7.5 percent drop recorded in the first quarter when the global recession appears to have been at its most severe level.

The industrial production figures are an important component in the compilation of overall economic output figures for the euro zone, and the surprise fall may stoke concerns that today's first estimate for the scale of the contraction in second-quarter gross domestic product will be greater than anticipated.

At present, the markets are expecting a 0.5 percent quarterly decline in euro zone GDP during the April-June quarter, a marked improvement on the 2.5 percent slump recorded in the first three months of the year.

The industrial sector is particularly important to the euro zone economy - the main reason behind the 2.5 percent economic contraction in the first quarter was a collapse in demand for high-value manufacturing exports, such as cars and heavy machinery, from places like Germany.

Ben May, European economist at Capital Economics, is predicting that euro zone GDP fell 0.7 percent in the second quarter, with the industrial improvement lopping off around a percentage point from the first quarter's drop.


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