Monday 20 March 2023

Shock slump across European industry bodes ill for 2016

LONDON, February 10, 2016

Europe's top four economies suffered steeper drops in industrial output during December than any analyst had forecast, a grim sign for the global economy as it struggles to sustain momentum.

Wednesday's industrial output data for Britain, France and Italy followed news a day earlier of a shock plunge in Germany, setting back expectations that economic growth across the continent might be picking up in 2016.

Overall, the data will add to pressure on the European Central Bank to inject more stimulus into the economy at its meeting next month. The Bank of England last week cut its growth forecasts but said it still expected to hike interest rates rather than cut them.

Industrial production in non-euro zone member Britain plunged at the fastest month-on-month pace since September 2012, in part due to mild weather that curbed demand for electricity, while France endured its sharpest drop since May 2014.

The figures showed manufacturers across Europe toiled against sagging demand from major emerging economies like China.

"I would expand this to say it's bad industrial output figures across the world. If you look at the United States as well, this has been a bit of a trend that has been embedding itself for a number of quarters," Rob Carnell, chief international economist at ING, said.

"It's hard to say anything other than that the countries we sell these goods to are not doing so well, and that's the emerging markets."

Economists said the bad industrial output figures raised the risk that the first estimate of euro zone economic growth for the fourth quarter, due on Friday, will disappoint expectations for a 0.3 percent expansion.

Bank of France Governor Francois Villeroy de Galhau on Wednesday highlighted solid internal demand in the French economy, which he said was not affected by market turbulence.

Despite the gloomy data, European stocks rose as concerns about the health of banks eased and oil prices recovered.

While Britain has been one of the fastest-growing major advanced economies in the world for the last couple of years, it has relied heavily on domestically focused services for growth, frustrating plans for a better-balanced recovery.

The manufacturing sector failed to contribute to British economic growth in 2015, and the latest figures do not augur well for this year.

British industrial output fell 1.1 percent month-on-month in December after a 0.8 percent drop in November, the Office for National Statistics said, worse than all forecasts in a Reuters poll of economists that forecast a 0.1 percent dip.

Likewise undercutting all forecasts, French industrial output slumped 1.6 percent on the month, while Italy suffered a second month of declining output for the first time since late 2014.

"All in all, today's data point to another disappointing quarter for euro zone industry. As a result, we have revised down our forecast for quarterly euro zone GDP growth to 0.2 percent," Jack Allen, economist at Capital Economics, said.-Reuters

Tags: stocks | Europe | slump |

More Analysis, Interviews, Opinions Stories

calendarCalendar of Events