Euro-Region Industrial Production Declines for Second Month

European industrial production declined for a second month in October, led by a drop in the output of energy and intermediate goods such as steel.

Production in the 17-nation euro area fell 0.1 percent from September, when it slumped 2 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast output to stagnate, according to the median of 31 estimates in a Bloomberg News survey. From a year earlier, production increased 1.3 percent.

European manufacturers are under increasing pressure to lower costs and eliminate jobs as governments toughen austerity measures just as global demand weakens. The European Central Bank on Dec. 8 lowered borrowing costs for a second time in as many months as the economy edged closer to a recession. European manufacturing contracted in November and economic confidence fell more than economists forecast.

“2011 was a difficult year for many Group of 10 countries; 2012 will be worse,” Steven Barrow, head of G-10 currency strategy at Standard Bank Plc in London, said in an e-mailed note before today’s report. “The euro zone is sliding into recession. We see this lasting six to nine months.”

The euro was little changed after the data were released, trading at $1.3058 at 11:07 a.m. in Brussels, up 0.2 percent.

The euro-region economy may expand 1.6 percent this year and 0.3 percent in 2012, the ECB said on Dec. 8. The central bank on that day lowered its benchmark interest rate by 25 basis points to 1 percent and extended the use of unconventional tools to bolster the economy.

‘Substantial Downside Risks’

ECB Vice President Vitor Constancio said policy makers are “open-minded” to extending non-standard measures if needed. All unconventional tools are “temporary,” he said.

“The outlook remains subject to high uncertainty and substantial downside risks,” Constancio said. “In such an environment, cost, wage and price pressures in the euro area should remain modest.”

Adding to signs of a deepening slump, euro-region unemployment unexpectedly increased in October to the highest in more than a decade and industrial orders had the biggest drop in almost three years in September. In Germany, Europe’s largest economy, investor confidence fell to the lowest in three years last month.

Euro-region manufacturing and services output probably contracted in December, a Bloomberg survey shows. Markit Economics will release the report tomorrow.

Rescue Fund

Output of capital goods rose 1.2 percent from September and intermediate goods fell 0.8 percent, the statistics office said. Production of durable goods dropped 0.4 percent, while non- durable goods increased 0.6 percent. Energy output slumped 0.9 percent in the month.

Volkswagen AG (VOW), Europe’s largest carmaker, said on Dec. 6 it’s “more cautious” on 2012 as the region’s fiscal crisis hurts demand. The Wolfsburg, Germany-based company said it’s “preparing carefully for all possible situations.”

European leaders at a Brussels summit last week added $267 billion to their crisis-fighting war chest and tightened deficit rules to restore investor confidence. They also sped the start of a 500 billion-euro ($652 billion) rescue fund to next year and dropped a demand that bondholders shoulder losses in rescues.

Klaus Engel, head of Germany’s VCI chemical association, said on Dec. 8 that the euro region’s debt crisis is one of “major uncertainty factors” in 2012.

“They are more and more becoming a burden on the real economy,” said Engel, who is also chief executive officer of Evonik Industries AG. “Should the financial crisis spread in the core countries of the euro zone and lead to another banking crisis, significant impacts on the economy must be expected.”

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

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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