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Euro-Area Industrial Output Falls for Second Month

Euro-Area Industrial Output Falls for Second Month on Germany
European manufacturers are cutting spending and jobs as global growth weakens. Photographer: Alessia Pierdomenico/Bloomberg

Euro-area industrial production declined for a second month in April, led by a drop in Germany, adding to signs of a deepening economic slump.

Output in the 17-nation euro area slipped 0.8 percent from March, when it fell 0.1 percent, the European Union’s statistics office in Luxembourg said today. Economists projected a drop of 1.2 percent, the median of 28 estimates in a Bloomberg News survey showed. From a year ago, production fell 2.3 percent.

European manufacturers are cutting spending and jobs after the region’s fiscal crisis pushed at least eight euro states into recession. European economic confidence slumped to the lowest in 2 1/2 years in May and European Central Bank President Mario Draghi said on June 6 that “a few” Governing Council members had pushed for a rate reduction at the policy meeting.

Today’s report “adds to growing evidence that the euro-zone economy took a further turn for the worse in the second quarter,” said Martin van Vliet, an economist at ING Bank in Amsterdam. “With the fiscal squeeze in the euro zone unlikely to ease soon and the debt crisis intensifying, any upturn in euro-zone industrial activity later this year will likely be modest.”

The euro extended gains after the data were released, trading at $1.2538 at 11:43 a.m. in Brussels, up 0.3 percent from yesterday. The Stoxx Europe 600 dropped 0.5 percent.

Banking Crisis

The single currency has shed 4.9 percent against the dollar over the past three months, reaching a two-year low, after an inconclusive election in Greece raised the specter of a euro breakup as Spain grappled with a deepening banking crisis.

The statistics office had previously reported a monthly decline of 0.3 percent in March. In the 27-nation EU, output fell 0.4 percent from the previous month and 1.7 percent from a year earlier.

The euro-region economy will probably shrink 0.1 percent this year before expanding 1 percent in 2013, the ECB said in its latest projections on June 6. The bank left its benchmark interest rate at 1 percent, matching a record low. It had previously forecast the economy to expand 1.1 percent next year.

While Germany’s economy helped to bolster the region’s gross domestic product in the first quarter, indicators have since weakened. Euro-region services and manufacturing output contracted at the fastest pace in almost three years in May and German business sentiment dropped. The euro-area unemployment rate held at 11 percent in April, an all-time high.

‘Free Fall’

“The latest data clearly show that the euro-land economy is in free fall,” Jan Amrit Poser, chief economist at Bank Sarasin in Zurich, said in an e-mailed note before today’s report.

German industrial output fell 2 percent in April from the previous month, when it rose 0.9 percent, today’s report showed. Italy and Spain reported monthly declines of 1.9 percent and 0.7 percent, respectively. Portugal had a slump of 6.5 percent. Ireland, France and Greece had a gain in the month.

Siemens AG, Germany’s largest engineering company, said on May 24 that it plans to eliminate 490 jobs at factories making transformers in response to falling prices. Bayerische Motoren Werke AG, the world’s biggest maker of luxury vehicles, said last month Germany’s car market won’t grow this year as the region’s crisis erodes demand.

Chinese Output

In China, the Purchasing Managers’ Index fell to 50.4 in May from 53.3 in the previous month, the statistics bureau and logistics federation said on June 1. Gauges for India, South Korea and Taiwan also fell. Business activity in the U.S. expanded in May at the weakest paced in more than two years as orders and production cooled.

Elsewhere in Asia, Japan’s machinery orders increased more than economists forecast and South Korea’s unemployment declined, two reports showed today. Sri Lanka kept interest rates on hold, with Governor Ajith Nivard Cabraal telling Bloomberg Television the economy can expand 7.2 percent this year “unless something dramatic happens in the third or fourth quarters, which may not be that likely.”

In the U.S., the Commerce Department is projected to report that retail sales fell in May for the first time in a year, according to a Bloomberg survey.

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