Euro-Area Industrial Output Unexpectedly Fell in March: Economy

European industrial production unexpectedly declined in March, capping a quarter that probably saw the economy slip into its second recession in as many years.

Production in the 17-nation euro area slipped 0.3 percent from February, when it advanced 0.8 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast a gain of 0.4 percent, the median of 34 estimates in a Bloomberg News survey showed. In the first quarter, industrial output fell 0.5 percent.

Government spending cuts and rising unemployment are undermining demand in the euro area and data tomorrow will probably show the economy shrank in the first quarter. The region’s ability to haul itself out of recession is being hampered by renewed concern Greece will exit the bloc, and Aditya Mittal, chief financial officer of ArcelorMittal, the world’s largest steelmaker, said May 10 that Europe “remains a live concern.”

“Industry will likely remain a drag on the economy,” said Martin van Vliet, an economist at ING Groep NV in Amsterdam. “With the fiscal squeeze in the euro zone unlikely to ease soon and the debt crisis flaring up again, any upturn in euro-zone industrial activity later this year will likely be modest. The sector faces a long hard slog back to ‘normal.’”

The euro-region economy probably shrank 0.2 percent in the first quarter after a 0.3 percent contraction in the previous three months, according to the median estimate of 38 economists in a Bloomberg survey. The EU’s statistics office will publish the data tomorrow.

Greek Deadlock

The euro weakened to the lowest in more than three months against the dollar today and traded at $1.2874 as of 11:29 a.m., in London. Spanish 10-year bond yields rose above 6.2 percent for the first time in more than five months, while the Stoxx Europe 600 Index fell 1.8 percent.

Greece’s political deadlock entered a second week as President Karolos Papoulias failed to secure an agreement on a unity government and avert new elections.

The country’s biggest anti-bailout party, Syriza, defied overtures to join the government yesterday, deepening the impasse. Leader Alexis Tsipras won’t attend a new meeting called by Papoulias today for 7:30 p.m., state-run NET TV reported, without saying how it got the information.

Crisis Escalation

The European Commission on May 11 called “an escalation of the sovereign-debt crisis” the largest risk to the area’s outlook. The region’s gross domestic product will probably drop 0.3 percent this year before increasing 1 percent in 2013, it said. Greece, Italy, Portugal and the Netherlands are all projected to shrink in 2012, with Spain the only euro-member nation seen remaining in contraction in the following year.

Today’s report helped highlight the euro region’s deepening economic slump. While Germany, Europe’s largest economy, reported a third monthly gain in industrial output, nations from France to Spain and the Netherlands struggled with decreasing production. Greek output fell 1 percent, Irish production dropped 2.7 percent, with Portugal the only one of the three countries that received external help reporting a gain.

“Germany and France will help support the development in industrial output over the coming months,” said Stefan Muetze, an economist at Helaba in Frankfurt. “We only see a very moderate euro-region expansion in the second half.”

Germany’s economy probably expanded 0.1 percent in the first quarter, economists forecast before data from the country’s statistics office tomorrow. France’s economy may have stagnated, a separate survey showed.

Asian Demand

Elsewhere in Europe, producer and import prices in Switzerland fell 2.3 percent in April from a year earlier. The decline is partly due to the strength of the franc, which has been boosted as investors seek a haven from the euro crisis.

Separately, Australian home-loan approvals unexpectedly rose in March for the first time in three months. The number of loans granted to build or buy houses and apartments gained 0.3 percent from February, when they fell 2.5 percent.

European companies may rely on demand from faster-growing markets to help bolster earnings. Reserve Bank of Australia Deputy Philip Lowe said today the country’s currency may stay elevated for several years as Chinese and Indian commodity demand propels the economy into a third decade of expansion.

Linde AG (LIN), the world’s second-largest maker of industrial gases, on May 4 reported first-quarter profit that beat analyst estimates, partly on Chinese demand, and called business in North America “robust.” Alstom SA (ALO), the world’s third-biggest power-equipment maker, the same day forecast sales to rise in the next three years.

“Europe clearly remains a live concern but we’re not seeing a crisis-like environment occurring,” Mittal said on May 10, when the company posted first-quarter profit that beat analyst estimates. “The risks are reduced from where we were in November.”

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

Enlarge image

Euro-Region Industrial Production Unexpectedly Fell in March

Guenter Schiffmann/Bloomberg

While nations from Spain to Italy are grappling with recessions, rising unemployment and budget cuts, German factory orders rose more than economists forecast in March, exports unexpectedly increased and executives grew more optimistic in April.

While nations from Spain to Italy are grappling with recessions, rising unemployment and budget cuts, German factory orders rose more than economists forecast in March, exports unexpectedly increased and executives grew more optimistic in April. Photographer: Guenter Schiffmann/Bloomberg

4:33

May 14 (Bloomberg) -- Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd., discusses the possible impact of Greece leaving the euro on European bonds. He speaks from Edinburgh with Guy Johnson on Bloomberg Television's "The Pulse." (Source: Bloomberg)