Euro-Area Industrial Production Expands Less Than Estimated

Euro-area industrial output expanded less than economists estimated in June as the currency bloc’s economy struggles to emerge from a record-long recession.

Factory production in the 17-nation euro area rose 0.7 percent from May, when it decreased a revised 0.2 percent, the European Union’s statistics office in Luxembourg said today. That was less than the gain of 1 percent projected by economists, according to the median of 37 forecasts in a Bloomberg News survey. June production rose 0.3 percent from the year-earlier month, the first annual increase in 20 months.

Europe’s manufacturing industry expanded in July for the first time in two years and business confidence improved for a third month, bolstering optimism that the economy edged back to growth last quarter after 18 months of contraction. Still, the euro-area jobless rate has risen to a record 12.1 percent, and youth unemployment is more than 50 percent in Spain and Greece.

European Central Bank President Mario Draghi said this month that recent data indicate the euro area is through the worst of the slump and “tentatively confirm the expectation of a stabilization in economic activity.” Investor confidence in Germany, Europe’s largest economy, increased more than economists expected in August, data showed today.

The euro-zone economy is estimated to have expanded 0.2 percent in the second quarter, according to a separate Bloomberg survey of economists. Gross domestic product declined 0.3 percent in the first quarter, a sixth consecutive contraction. The statistics office will release the latest GDP data tomorrow.

‘Extended Period’

Relative calm on financial markets has helped the euro area begin to recover from the longest slump since the debut of the single currency. The ECB has cut interest rates to their lowest ever and Draghi has pledged they will stay there or lower for an “extended period.”

Europe’s benchmark Stoxx 600 index has gained almost 10 percent so far this year and was up 0.5 percent to 307.62 at 10:17 a.m. in London, reaching the highest since May. The euro has appreciated 1.9 percent against the U.S. dollar in the past month and traded at $1.3314, up 0.1 percent on the day.

Industrial output in Germany, Europe’s largest economy, expanded 2.5 percent in June after a 0.7 percent drop a month earlier, today’s report showed. French output fell 1.5 percent after a 0.3 percent decrease. Production in Spain dropped 0.5 percent, while Italy recorded a 0.3 percent increase.

Potential Drag

Production of capital goods rose 2.5 percent in June after a 1.1 percent drop a month earlier. Output of non-durable consumer goods rose 4.9 percent after a 1.9 percent decline. Energy production decreased 1.6 percent.

Rising unemployment is a potential drag on the economic recovery, though there are signs the labor market may be turning the corner. While the euro-area jobless rate has held at a record since March, the number of unemployed people declined in June for the first time in more than two years, the statistics office said on July 31.

“The labor market remains the main bugbear of the euro zone, as rising joblessness hurts growth and raises political and social tensions,” said Rob Dobson, senior economist at Markit Economics. “But even here there was some better news.”

The rate of job-cutting in the euro area eased to a 16-month low in July, Markit said in a report this month. Still, unemployment is forecast to rise to 12.4 percent in the fourth quarter and to average 12.3 percent next year, according to a Bloomberg monthly survey of economists.

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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