French and Italian industrial production unexpectedly fell in October, underscoring the divide between Germany’s surging economy and the rest of Europe as the sovereign debt crisis threatens the recovery.
Output from French factories, mines and utilities declined 0.8 percent after gaining 0.1 percent in September, Paris-based statistics office Insee said today. Italy’s production fell 0.1 percent after a 2.1 percent drop in September, Rome-based Istat said. Economists forecast a 0.3 percent gain in France and 0.7 percent increase in Italy, according to Bloomberg News surveys.
The euro-region recovery is being led by Germany, where unemployment is the lowest in almost two decades, while other nations struggle to catch up. The debt crisis, which pushed the gap between Italian and German borrowing costs to the widest in the euro’s lifetime last month, threatens to further amplify the divergence between members as high-deficit nations cut spending.
“If you look at the last three months of industrial production in Germany, and do the same for France and Italy, which aren’t the weakest, there are quite big differences,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “But as we move into next year, the areas to watch are government spending and consumer spending as we’re on the verge of a big fiscal squeeze, and exports and industrial production are probably the areas where we’ll see some relief.”
The euro was little changed at $1.3246 at 1:15 p.m. in London. The extra yield on Italian 10-year bonds compared with German equivalents rose to 160 basis points from 159 basis points yesterday.
French production was hurt by strikes and the blockage of the country’s main ports as part of protests against President Nicolas Sarkozy’s plan to increase the retirement age. The demonstrations, which began Sept. 7 and came to a head at the end of October, cost the economy 200 million euros ($265 million) to 400 million euros a day at their peak, the finance ministry estimates.
Separate data today showed Italian economic growth slowed to 0.3 percent in the third quarter from 0.5 percent in the previous three months. That compares with an initial estimate of 0.2 percent reported on Nov. 12. The country’s industrial-production growth slowed to an annual 2.9 percent in October from 4.4 percent in September, today’s report showed.
“Even assuming a reasonably strong rebound over the next few months, fourth-quarter output is likely to be at best flat over the quarter, supporting our call that growth will remain subdued,” Luigi Speranza, head of fiscal and inflation economics at BNP Paribas in London, said in an e-mailed note on the industrial output data. He also expects growth in consumption to be “capped by a high level of uncertainty and a further slowdown in real disposable income growth.”
Italian unemployment surged to 8.6 percent in October, the highest since 2003, according to the European Union’s statistics office. France’s jobless rate declined to 9.8 percent in October from 9.9 percent in September and a decade-high of 10 percent in November 2009. That compares with 6.7 percent in Germany, the lowest rate since 1992.