Euro zone industry output up in May, misses forecast

Euro zone industry output up in May, misses forecast
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First Published: Tue, Jul 14 2009. 08 22 PM IST
Updated: Tue, Jul 14 2009. 08 22 PM IST
Brussels: Euro zone industrial output rose month-on-month in May for the first time since August 2008 and even though the gain fell short of market expectations, it added to signs that the recession may be bottoming out.
Industrial production in the 16-country euro area increased 0.5% on the month but fell 17% percent year-on-year, the European Union’s statistics office said on Tuesday. There was a broad-based rise in output of intermediate, capital and non-durable consumer goods.
However, the increase compared with April came in below the expectations of economists, who had forecast a 1.2% monthly gain and a 17.7% annual fall.
“It is weaker than expected. But nevertheless (the increase) is a good sign. Industry is on the way to stabilisation,” said Juergen Michels, economist at Citigroup.
In the euro zone’s two biggest economies, Germany and France, production rose 3.7% and 2.6% respectively on a monthly basis, but the overall result was lowered by flat output in Italy and a 2.9% decline in Spain.
“Despite the weaker-than-expected outcome, we continue to think that the euro zone industrial sector — and indeed the overall economy — will emerge from recession in the third quarter,” said Nick Kounis, economist at Fortis.
Eurostat revised upwards its production data for April to a monthly contraction of 1.4% from the previously reported fall of 1.9%, and to a year-on-year drop of 20.5% versus the initially reported 21.6% decline.
“In the coming months, we will see more positives for output than negatives and there’s a fighting chance industrial production will expand in the third quarter overall, opening the door for a positive change in gross domestic product,” said Ken Wattret, economist at BNP Paribas.
“However, we see this as a technical rebound in the industrial sector, and the underlying condition of the euro zone economy remains very fragile,” he said.
A surprise fall in German analyst and investor sentiment in the July ZEW index, its first since October 2008, further underlined the continued fragility of the economy.
Industrial production accounts for roughly 17% of euro zone gross domestic product, and the May data could mean the economic contraction in the second quarter was likely to be smaller than in the first.
The euro zone economy shrank by a record 2.5% on a quarterly basis in the first three months of 2009, and the European Commission expects it to have contracted by 0.6 percent in the second quarter.
“It is premature at this stage to deduce anything more than the euro zone manufacturing sector is experiencing a bounce, after an extended very sharp contraction,” said Howard Archer, economist at IHS Global Insight, saying businesses had to do some restocking after running supplies down sharply.
“For significant, sustainable manufacturing recovery to develop, there needs to be an extended pick-up in orders in both domestic and foreign markets and this currently remains highly uncertain,” he said.
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First Published: Tue, Jul 14 2009. 08 22 PM IST