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Eurozone industrial output falls sharply, clouding recovery

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(Globalpost/GlobalPost)

Eurozone industrial output fell sharply in October, stoking concerns a fragile recovery from a record recession could be stalling, official data showed on Thursday.

Industrial output in the 17-nation eurozone slumped 1.1 percent in October compared with September when it fell a revised 0.2 percent, the Eurostat statistics agency said.

In the full 28-member European Union, industrial production dropped 0.7 percent after a marginal gain of 0.1 percent in September, Eurostat said.

Several analysts said the figures were worrying, especially after economic growth slowed sharply in the third quarter.

"October's marked drop in industrial production indicates that the eurozone is struggling to regain even modest economic momentum," said Howard Archer of IHS Global Insight.

Industrial output figures can be volatile but as well as the large drop, October was also the second consecutive monthly downturn.

That is of particular concern since the eurozone escaped a record 18-month recession in the second quarter with growth of 0.3 percent only for this to slow to a marginal 0.1 percent in the third.

Archer said the European Central Bank would likely have to take further stimulus measures soon, having recently cut its benchmark interest rate to a record low 0.25 percent in an effort to boost activity.

"It is possible that the ECB will eventually go down the negative deposit interest rate route," even it would prefer not to, he said.

Negative rates on deposits with the ECB would be a radical step meant to push the commercial banks to lend their money out rather than in effect pay for the ECB to hold it.

While the ECB and national authorities have pumped massive amounts of cheap money into the financial markets, the banks have largely focused on rebuilding their capital base rather than take on risk.

The ECB is likely to hold interest rates at 0.25 percent through to 2015 but "could trim it to 0.1 percent or even zero," depending on circumstances, Archer said.

Among the major economies, industrial output in EU powerhouse Germany fell 1.2 percent after a downturn of 0.7 percent, with output in France off 0.3 percent, the same as in September.

Non-euro Britain was up 0.4 percent, slowing too after a gain of 0.9 percent in September.

Compared with October 2012, industrial output, a broad measure of manufacturing activity, was up 0.2 percent in the eurozone while the full EU gained 0.8 percent.

Figures paint 'downbeat picture'

Capital Economics analyst Ben May said the data "paint a pretty downbeat picture and suggest that the industrial sector cannot be relied on to drive a wider euro-zone economic recovery."

The separate country figures "also painted a pretty bleak picture," May said, citing Germany and France, and also Spain which fell 0.8 percent after a rise of 0.2 percent in September.

Other analysts said the report might not be as bad as the headline figures suggest.

Tom Rogers, a senior economic adviser to Ernst and Young Eurozone Forecast, said that while the data look disappointing, it "would seem largely to reflect a reaction to the stock building that took place in the third quarter.

"As such, while the numbers do underline the relative fragility of the eurozone recovery, they shouldn't provide too much ground for pessimism over a relapse into recession in the final quarter of the year," Rogers said.

"As confidence continues slowly building amongst eurozone firms and households, the recovery towards modest but stable growth should continue in 2014. Our forecast ... predicts growth of 0.9 percent for next year."

Last month, the European Commission trimmed its 2014 eurozone growth estimate to 1.1 percent from 1.2 percent and put 2015 at 1.7 percent.

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http://www.globalpost.com/dispatch/news/afp/131212/eurozone-industrial-output-falls-sharply-clouding-recovery-1