Hopes that Europe’s crucial manufacturing sector might be poised to recover were dampened yesterday when official figures showed industrial production unexpectedly fell in June.
Figures from the EU’s statistics office Eurostat showed that industrial production in the 16 countries that use the euro dropped 0.6 percent in June from the previous month. That fell short of expectations for a modest 0.3 percent rise. June’s decline offset an equivalent increase recorded in May.
That means that euro zone industrial output fell by 3 percent in the second quarter of this year from the previous three month period.
Though sizable, the drop was much less than the 7.5 percent drop recorded in the first quarter when the global recession appears to have been at its most severe.
The industrial production figures are an important component in the compilation of overall economic output figures for the euro zone, and the surprise drop may stoke concerns that today’s first estimate for the scale of the contraction in second-quarter GDP will be greater than anticipated.
At present, the markets are expecting a 0.5 percent quarterly decline in euro zone output during the April-June quarter, a marked improvement on the record 2.5 percent slump recorded in the first three months of the year.
The industrial sector is particularly important to the euro zone economy — the main reason behind the 2.5 percent economic contraction in the first quarter was a collapse in demand for high-value manufacturing exports, such as cars and heavy machinery, from places like Germany.
Ben May, European economist at Capital Economics, is predicting that euro zone GDP fell by 0.7 percent in the second quarter, with the industrial improvement lopping off around one percentage point from the first quarter’s drop.
In the second half of the year, he said he expects the industrial sector to be even less of a drag on the euro zone economy but cautioned that things could change as much depends on how depleted company stock levels are.
“With the inventory unwind potentially having further to run and firms still reporting that order books are shrinking, the sector may still be some way from embarking on a sustained recovery,” May said.
June’s disappointing figures come less than a week after European Central Bank president Jean-Claude Trichet sounded a more optimistic tone when he said there were signs the global economy was bottoming out and that the euro zone economy was set to start growing again next year.
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