Euro-Region Industrial Output Drops as Slump Persists: Economy

Euro-area industrial output fell more than economists forecast in January, adding to signs that the region’s recession extended into the first quarter.

Factory production in the 17-nation euro zone dropped 0.4 percent from December, when it rose a revised 0.9 percent, the European Union’s statistics office in Luxembourg said today. The median forecast in a Bloomberg News survey of 32 economists was for a 0.1 percent decline. Production fell 1.3 percent in January from a year earlier.

The euro-region economy is struggling to regain momentum after five straight quarters of contraction, with unemployment at a record 11.9 percent. The economy will shrink again in the first three months of 2013 before returning to growth, according to a separate Bloomberg survey, while the European Central Bank has forecast a 0.5 percent contraction this year.

It’s a “timely reminder that, despite the improvement in business and financial market sentiment, the region may have remained in recession in the first quarter,” said Ben May, an economist at Capital Economics Ltd. in London. “With business surveys still pointing to further falls in production, it appears unlikely that the industrial sector is on the cusp of a sustained recovery.”

The euro declined 0.1 percent against the dollar today and was at $1.3017 as of 10:47 a.m. London time.

Manufacturing Index

Euro-area manufacturing remained weak in February, according to Markit Economics Ltd. Its monthly factory index held at 47.9 last month, below the 50 mark that divides contraction from expansion. The gauge has been below that level for more than a year and a half.

“The euro zone’s economic recovery is likely to be excruciatingly slow,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “With growth so weak and inflation likely to continue to fall toward low levels, we think there is room for more stimulus and the ECB should be more proactive.”

Industrial output in Germany, Europe’s largest economy, slipped 0.4 percent in January after a 0.8 percent gain in December, today’s report showed. France reported a decline of 1.2 percent, while Spanish output rose 0.6 percent. The statistics office didn’t report data for Italy. Energy output dropped 1 percent, while durable consumer goods slumped 1.4 percent and capital-goods production fell 1.2 percent.

Tensions Ease

“While sovereign debt tensions have eased markedly overall since autumn 2012 and business and, to a lesser extent, consumer confidence has improved, this is yet to really feed through to lift economic activity in most euro-zone countries,” said Howard Archer, an economist at IHS Global Insight in London.

In a sign of those reduced tensions, Ireland held its first sale of 10-year bonds since a 2010 bailout today. It drew least 7 billion euros ($9.1 billion) of bids, according to people familiar with the matter. Ireland is seeking to become the first nation to leave a bailout program since the euro-area debt crisis started.

Elsewhere, data showed French inflation cooled for a sixth month in February. Consumer prices climbed 1.2 percent from a year earlier on an EU harmonized basis, the slowest pace in three years, down from 1.4 percent in January. In Spain, core inflation accelerated to 2.3 percent from 2.2 percent. The rate excludes energy and fresh-food prices.

China Alert

In China, central bank Governor Zhou Xiaochuan said the country should be on “high alert” over inflation after February’s figures exceeded forecasts. Consumer-price growth, distorted by the week-long Lunar New Year holiday, accelerated to a 10-month high of 3.2 percent.

Monetary policy is “no longer relaxed” and is “relatively neutral” as demonstrated by a 13 percent target for money-supply growth that’s tighter than expansion in the last two years, said Zhou, head of the People’s Bank of China. The comments add to signs that officials are tightening policies even as the recovery in the world’s second-biggest economy shows signs of weakness.

Sales at U.S. retailers probably rose in February for a fourth month, economists said before a report today.

The projected 0.5 percent advance would follow a 0.1 percent gain in January, according to the median forecast in a Bloomberg survey of 82 economists. Retail sales excluding auto dealers and gasoline stations probably rose 0.2 percent, the survey showed.

To contact the reporter on this story: Patrick Henry in Brussels at phenry8@bloomberg.net

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

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