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Euro-Area Industrial Output Declines More Than Forecast

Sept. 12 (Bloomberg) -- Euro-area industrial output contracted more than economists forecast in July as manufacturers struggled to shake off the legacy of a record-long recession.

Factory production in the 17-nation euro area fell 1.5 percent from June, when it gained 0.6 percent, the European Union’s statistics office in Luxembourg said today. That’s more than the 0.3 percent contraction forecast by economists, according to the median of 33 estimates in a Bloomberg News survey. In the year, output fell 2.1 percent.

The euro-area economy’s return to growth in the second quarter from its longest-ever recession has been restrained by record unemployment and inflation has remained below the European Central Bank’s 2 percent ceiling for seven months. That may help to explain why economists in a Bloomberg News survey see growth slowing to 0.1 percent in the third quarter after a 0.3 percent expansion in the three months through June.

The industrial-output “data call into question the region’s recovery,” said Chris Williamson, chief economist at Markit Economics in London. “There is clearly a risk that GDP could contract again in the third quarter, as some of this second-quarter growth proves to have been only temporary.”

Five-Year High

The euro declined against the U.S. dollar on the data and traded at $1.3289 at 11:01 a.m. in London, down 0.2 percent on the day. European stocks fell from a five-year high, with the Stoxx Europe 600 Index dropping 0.4 percent to 309.69.

Production in Germany, Europe’s largest economy, declined 2.3 percent in July after a 2.2 percent gain in June, today’s report showed. Output in France fell 0.6 percent, while Italian industrial production unexpectedly declined 1.1 percent, signaling that the euro area’s third-biggest economy may still be stuck in its longest recession since World War II.

Ford Motor Co. and General Motors Co., the two largest U.S. automakers, are working to end losses in Europe as the industry weathers a six-year decline in the region’s auto market. European car sales fell 6.7 percent in the first half to 6.44 million vehicles, according to the Brussels-based ACEA industry group.

Ford expects its European unit to turn a full-year profit in 2015, the automaker’s regional chief said this week, while GM said it expects to break even there a year later.

International Investors

At the same time, international investors are expressing renewed faith in the European economy, according to the latest Bloomberg Global Poll. Forty percent of the responding investors, analysts and traders who are Bloomberg subscribers said the euro-area economy is improving, more than four times the number in May and a signal that the bloc’s debt crisis is ending.

Still, record unemployment is proving resistant to the improving outlook. The euro-area jobless rate remained at a record 12.1 percent in July and analysts forecast that it won’t drop below 12 percent through 2015.

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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