European Industrial Output Declines 1.1%

European industrial production declined in December led by a slump in Germany, adding to signs the region may have slipped into its second recession in three years.

Production in the 17-nation euro area fell 1.1 percent from November, when it remained unchanged, the European Union’s statistics office in Luxembourg said today. Economists had forecast a drop of 1.2 percent, the median of 36 estimates in a Bloomberg News (EUITEMUM) survey showed. From a year earlier, production decreased 2 percent.

The region’s economy probably failed to grow in the fourth quarter as governments toughened austerity measures, undermining spending and hiring, just as global exports weakened. While industrial orders dropped in November and unemployment held at the highest in more than a decade in December, European Central Bank President Mario Draghi said on Feb. 9 that he sees “tentative signs” of economic stabilization.

“The euro-region economy probably slipped into contraction in the fourth quarter of 2011 and may continue to shrink through the first half of 2012,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “The fiscal crisis still has the potential to hurt the economy and there are enormous risks.”

Gross domestic product probably dropped 0.4 percent in the three months through December after rising just 0.1 percent in the previous three months, according to the median estimate of economists in a Bloomberg survey. That would be the region’s first quarterly contraction in 2 1/2 years. The statistics office will release the GDP figures tomorrow.

Cost Cuts

In Germany, Europe’s largest economy which has driven the region’s economic expansion, output slumped 2.7 percent from November, when it fell 0.3 percent, today’s report showed. Greece and France reported declines of 2.4 percent and 1.3 percent in the month, respectively, with Portugal’s output slumping 1.6 percent. In Ireland, production rose 2.5 percent.

With economies cooling across the region and export orders weakening, companies have been forced to lower costs to help protect earnings. Employers around the globe are cutting jobs more than three times faster than in 2011, Bloomberg data show.

HeidelbergCement AG (HEI), the world’s third-largest maker of cement, on Feb. 9 reported a gain in fourth-quarter profit after the Heidelberg, Germany-based company cut costs and boosted output in faster-growing emerging countries.

The ECB has cut borrowing costs, purchased government bonds and extended provisions of unlimited cash to banks to help fight the region’s fiscal crisis. Draghi said on Feb. 9, when keeping the benchmark interest rate at a record low of 1 percent, that the economic outlook is due to “high uncertainty and downside risks,” partly following the turmoil.

Greek Bailout

European finance ministers meeting in Brussels the same day held back a rescue package for Greece, saying the nation needs to first implement the latest round of austerity measures. The finance chiefs will convene again in Brussels tomorrow for another extraordinary meeting on Greece after the Greek parliament backed austerity measures they demanded for the financial lifeline.

Resolution of the aid talks, which have dragged on since July, would allow the country to make a 14.5 billion-euro ($19 billion) bond payment on March 20 and contain the threat that speculators will target debt-saddled nations including Italy.

While European leaders are seeking ways to stem contagion, the fiscal crisis is already affecting companies. Legrand SA (LR), the world’s biggest maker of wiring devices, on Feb. 9 reported earnings that missed analyst estimates and said its operating margin may fall in 2012, partly as the region’s debt crisis hurting sales.

Capital Goods

Output of capital goods in the euro region fell 0.8 percent from November, when it rose 0.2 percent, today’s report showed. Production of durable consumer goods rose 0.2 percent and energy output fell 2 percent. Production of intermediate goods fell 0.7 percent.

Siemens AG (SIE), Europe’s largest engineering company, on Jan. 24 reported earnings that missed estimates as profitability dropped at its four main units, and predicted that Europe will slip into recession in the coming months.

“The uncertainties of the ongoing debt crisis have left their mark on the real economy,” Siemens Chief Executive Officer Peter Loescher said on that day. “Although a recovery is expected in the second half of the year, we must work hard to achieve our goals.”

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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