Oct. 14 (Bloomberg) -- European industrial output rose for a fourth month in August, led by consumer durable goods, adding to signs the euro-area economy is emerging from the deepest recession since World War II.

Production in the economy of the 16 nations using the euro increased 0.9 percent from July, when it gained 0.2 percent, the European Union’s statistics office in Luxembourg said today. Output of durable goods such as washing machines jumped 5.3 percent, the biggest gain since the data began in 1990. From a year earlier, August output fell 15.4 percent, the slowest annual drop in eight months.

The global economy is gathering strength after central banks cut interest rates to near zero and governments pledged $2 trillion in stimulus measures. The European Central Bank last week kept borrowing costs at a record low and ECB President Jean-Claude Trichet said the euro-area economy is recovering “at a gradual pace.” Exports from China, the world’s fastest growing major economy, fell at the slowest pace in nine months in September, data showed today.

“Manufacturing surveys continue to paint a rosy picture of the near-term outlook,” said Carsten Brzeski, an economist at ING Groep NV in Brussels. “The industrial recovery will continue but, of course, no recovery follows a straight upward line. New setbacks are likely.”

Potential Growth

The International Monetary Fund said on Oct. 3 that it expects the euro-region economy to shrink 4.2 percent this year before expanding 0.3 percent in 2010. While the crisis has hampered Europe’s medium-term economic outlook, potential growth should return to its historic trend in most of the region’s advanced economies, the Washington-based IMF projected.

Adding to evidence of recovery is gaining steam, confidence in the world economy increased for a third month in October amid gains in manufacturing and equities, a Bloomberg survey of users on six continents showed today. The Bloomberg Professional Global Confidence Index rose to a record 61.7.

Confidence in the European economic outlook improved to a one-year high last month and a gauge of euro-area manufacturing and services industries showed a stronger expansion than initially estimated. German business confidence is at a 12-month peak. European imports from China rose last month to the highest value since that nation’s export collapse began in November, the Chinese customs bureau said today.

Leipzig Factory

Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, is among companies stepping up output on reviving demand. The Munich-based company has boosted production at its Leipzig factory to a record 730 cars a day from 600, Harald Krueger, BMW’s personnel chief, said in an interview on Oct. 7.

“There is no short-time work at any of the auto-assembly plants in Germany,” Krueger said.

European output of capital goods such as factory machinery rose 1.1 percent from July, when it fell 1.6 percent, today’s report showed. Energy production increased 0.5 percent after a 0.1 percent gain in the prior month.

A recovery may remain too fragile to encourage companies to hire workers. Europe’s unemployment rate rose to 9.6 percent in August from 9.5 percent in the previous month. That was the highest since March 1999.

Volkswagen AG, Europe’s largest carmaker, said on Oct. 8 that the worldwide automotive market won’t return to pre- recession levels before 2013. Chief Executive Officer Martin Winterkorn said the Wolfsburg, Germany-based company will still face a “very difficult year” in 2010. ArcelorMittal, the world’s largest steelmaker, said last month that “markets are not expected to normalize in Europe and the U.S. in 2010.”

Covered Bonds

The Frankfurt-based ECB has offered banks unlimited cash over 12 months and purchased covered bonds to encourage lending. Trichet said on Oct. 9 that it is “not the time to exit yet.” ECB council member George Provopoulos said earlier this month that it will be a “challenge” to choose the right time to withdraw stimulus measures.

An 8.8 percent gain by the euro against the dollar over the past five months is threatening to curb the recovery by making European exports less competitive. Trichet said last week that U.S. authorities’ preference for a strong dollar is “extremely important in the present circumstances.” The euro traded at $1.4898 at 3 p.m. in London, up 0.3 percent on the day.

“In the current beginning of a very fragile recovery, the ECB is becoming increasingly aware that a stronger euro must be absolutely avoided,” said Aurelio Maccario, chief euro-area economist at UniCredit Group in Milan. “A strong euro is another solid argument in favor of our view of a refinancing rate stuck at 1 percent throughout 2010.”

To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net

Last Updated: October 14, 2009 10:03 EDT