Euro-Region Industrial Output Unexpectedly Increases
Output in the 17-member euro area rose 0.6 percent from July, when it also increased by that amount, the European Union’s statistics office in Luxembourg said today. Economists had projected a drop of 0.4 percent, the median of 36 estimates in a Bloomberg News survey showed. From a year ago, output slipped 2.9 percent after a 2.8 percent decline in July.
The European economy remains under pressure from the region’s fiscal crisis and faltering global growth, while economists at ING Bank and UniCredit said the surge in industrial output may reflect seasonal volatility. The International Monetary Fund cut its euro-area outlook earlier this week, saying a further escalation of the turmoil remains “a major downside risk.” Global officials are gathering for IMF and World Bank meetings in Tokyo today.
“We would not exclude the possibility of a sharp reversal in September,” said Martin van Vliet, an economist at ING in Amsterdam. “With the global economy slowing and the fiscal squeeze in the euro zone continuing, any upturn in euro-zone industrial activity will likely be modest.”
The euro traded at $1.2973 as of 12:06 p.m. in Brussels, up 0.4 percent on the day. Both the Stoxx Europe 600 Index and Germany’s DAX benchmark dropped 0.4 percent.
The euro-area economy probably shrank 0.3 percent in the third quarter after a 0.2 percent contraction in the previous three months, according to a Bloomberg News survey. It may shrink 0.4 percent this year before expanding 0.2 percent in 2013, the IMF said on Oct. 9. It had previously forecast an expansion of 0.7 percent next year.
In Germany, industrial production fell 0.4 percent in August from the previous month, when it rose 1.3 percent, today’s report showed. France and Italy reported increases of 1.5 percent and 1.7 percent, respectively. Spanish output advanced 1.3 percent, while Greece had a jump of 2.5 percent from July, when it rose 2.2 percent.
German Finance Minister Wolfgang Schaeuble said today that global finance chiefs meeting in Tokyo acknowledged that Europe has made “significant progress” in overcoming the crisis. Bundesbank President Jens Weidmann said at the same briefing that while the global economy is “in a difficult situation,” there’s no reason for pessimism on the outlook.
Companies have been forced to cut costs and eliminate jobs to weather the downturn. The euro-area unemployment rate reached a record 11.4 percent in June and held at that level through August. Economic confidence unexpectedly fell in September, partly as manufacturers grew more pessimistic.
Christian Klingler, sales chief at Volkswagen AG (VOW), said in a statement on Sept. 14 that the Wolfsburg, Germany-based carmaker is “monitoring the continued tense situation, particularly in Western Europe, very closely.” PSA Peugeot Citroen (UG) and Fiat SpA (F) have moved to cut production, with the European car market poised to shrink for a fifth straight year.
MAN SE, the truckmaker controlled by Volkswagen, said today that 2013 will be even tougher than this year as orders in the third quarter slumped more than normal. The Munich-based company has announced a hiring freeze.
Euro-area output of capital goods rose 0.7 percent in August from the previous month, when it increased 2 percent, today’s report showed. Production of durable consumer goods gained 3.9 percent, while output of intermediate goods was unchanged in the month. Energy production rose 0.9 percent.
The IMF forecasts that the world economy will grow 3.3 percent this year, the weakest pace since the 2009 recession. There are “alarmingly high” risks of a steeper slowdown, it said.
“A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component,” the IMF said. “The answer depends on whether European and U.S. policy makers deal proactively with their major short-term economic challenges.”
In the U.S., the Thomson Reuters/University of Michigan index of U.S. consumer sentiment probably fell in October, a Bloomberg survey shows ahead of today’s release. The Federal Reserve last month announced its third round of large-scale asset purchases since 2008, with no limit this time on the ultimate amount it would buy or the duration.
Fed Chairman Ben S. Bernanke says stimulus will be expanded until there’s a “sustained improvement” in the labor market.
European Central Bank President Mario Draghi said on Oct. 4 that indicators confirm “the continuation of weak economic activity in the third quarter.” The Frankfurt-based central bank, which has cut borrowing costs to a record low, last month unveiled details of a bond-purchase program to help debt- burdened nations if they ask for aid.
Alessandro Tentori, an economist at Citigroup Inc. in London, said he expects the ECB to cut its benchmark interest rate by 25 basis points from 0.75 percent in December.
“This should be followed then in the first quarter 2013 by further easing,” he told Caroline Hyde on Bloomberg Television’s “The Pulse” on Oct. 9. Still,“monetary policy alone can’t work in such an environment.”
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