Monday, November 14, 2011

Euro zone output falls most since early 2009

BRUSSELS (Nov 14):'' Euro zone industrial production fell 2 percent in September, pointing to a sharp contraction towards the end of the year and a growing threat of a fall into recession.

The slide in output at factories in the 17 nations sharing the single currency was the biggest fall since February 2009 -- when the economy was reeling from the worst financial crisis since the 1930s -- European Union statistics agency Eurostat said.

"It clearly doesn't bode well for the future," said Francois Cabau, an economist at Barclays Capital. "If we don't see some resolution of the euro zone sovereign debt crisis, business confidence could go even lower."

He expected a 0.2 percent contraction in the region's economy in the fourth quarter. Analysts polled by Reuters expect an expansion of only 0.2 percent in the second quarter. Two consecutive quarters of negative growth signals a fall into recession.

Economists had feared the figures on industrial output would be slightly worse, forecasting a 2.2 monthly decline in September, but there was some output growth in smaller euro zone economies such as Austria, Slovakia and Spain.

That could by no means offset falls in Germany and France, however, which fell 2.9 percent and 1.9 percent respectively. Industrial orders in September in Germany slumped the most since January 2009, the German economy ministry said earlier this month.

Heavily-indebted Italy, which looms large over Greece as the biggest concern to the euro zone's survival, saw industrial output tumble 4.8 percent in September.

"The whole (euro zone) economy is moving into recession territory. That includes manufacturing, which is likely to be contracting in coming months," said Nick Kounis at ABN Amro.

He said the bleak data would add to pressure for the European Central Bank to further ease its monetary policy in the hope of supporting the region's economy.

The ECB cut interest rates by 25 basis points to 1.25 percent this month under new president Mario Draghi, who warned of a mild recession in the euro zone. Many economists expect another cut in December.

EURO BREAK-UP WORRIES

Stronger-than-expected figures from industry in August, when output expanded 1.4 percent, showed the euro zone economy providing some resilience to cooling growth in Asia and the United States.

But declining orders in Europe have fed through to factories, and manufacturers are lowering production, hurt by government spending cuts and the sovereign debt crisis that is weakening business confidence.

"Industrial output may contract pretty sharply in the fourth quarter," said Ben May at Capital Economics. "Data appears to support our view that the euro zone will soon fall back into another fairly deep recession," he said.

Compared to a year ago, industrial production rose 2.2 percent in September in the euro zone, below expectations of a 3.3 percent rise. For the 27-nation EU, output fell 1.3 percent on a monthly basis. It rose 2.2 percent on an annual basis.

Companies across Europe are warning shareholders that slowing demand could hit profits, as a mix of inflation, high unemployment and government austerity keeps shoppers home.

At the same time, the euro zone's debt crisis is making investors nervous and some fear a euro breakup that would trigger financial chaos similar to, or worse, than the collapse of U.S. investment bank Lehman Brothers in 2008.

In just one sign of weakening industry worldwide, Luxembourg-based ArcelorMittal SA, the world's largest steelmaker, said its core profit fell 29 percent in the third quarter from the second. - Reuters

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