Industrial output plunges in Europe in May

14th July 2008, Comments 0 comments

Europe experiences biggest fall in industrial production in 16 years, fuelling news fears about the outlook for economic growth.

14 July 2008

BERLIN - Industrial production in Europe chalked up its biggest fall in nearly 16 years in May, data released Monday showed, as a result fuelling new fears about the outlook for economic growth.

Seasonally adjusted industrial production fell month on month by 1.9 percent in the 15-member eurozone and by 1.4 percent in the 27- member European Union, the EU statistic office, Eurostat said.

It was the biggest fall in industrial production since December 1992 with the drop coming against the backdrop of a pickup in inflation, surging oil prices and the economic fallout from the global financial market and credit crisis.

Adding to the pressure on the 15 countries sharing the euro has been the strength of the common currency, which last week edged back up towards it all-time high of just over 1.60 dollars.

Despite being considered by economists as a key if volatile economic indicator, the industrial production contraction will also add to expectations that growth in the European economy will slip back a gear in the run-up to the end of the year.

The monthly fall in industrial production translated into an annual 0.6 percent in the eurozone dragged down by the slumping output in the currency bloc's three biggest economies Germany, France and Italy.

Data released showed exports from Germany and France, which together account for almost half the eurozone's output falling in May.

The increasingly gloomy economic picture emerging in Europe also came amid signs that US mortgage market crisis still poses risks for the world economic outlook with Washington throwing two key lenders financial lifelines over the weekend.

"The crisis is by no means over," banking expert Dirk Schiereck told the Deutsche Presse-Agentur dpa.
"It will continue through the second half of the year," the European Business School professor said.

Year-on-year industrial output in the broader-based EU fell by 0.5 percent, Eurostat said, with 18 of the 27 member states clocking up a drop in industrial production.

The fall in EU industrial production also followed evidence that Central and Eastern Europe's once booming economies are losing momentum.

Economists had also expected a grim set of industrial production data, predicting a 2.3 percent month-on-month fall but a modest year-on-year gain of 0.3 percent.

Helping to lead the fall in eurozone industrial production was a sharp 3.3-percent month on month drop in durable consumer goods in May.

This represented a 5.2 percent annual fall and helps to point to worries that rising inflation and growing economic uncertainty is taking its toll on consumer demand just as slowing global growth and a strong currency are undercutting exports.

In April production grew by 1.0 percent in the eurozone and 0.3 percent in the EU.

The slump in eurozone industrial production could make it more difficult for the European Central Bank to raise interest rates again in the coming months.

The ECB delivered a 25-basis points increase in the cost of money this month to ward off renewed inflationary pressures in the eurozone.

At 4 percent, eurozone inflation now stands at double the ECB's target of "close to, but just below 2 percent" with soaring food and energy costs having sparked a global pickup in inflation.

[dpa / Expatica]

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