Eurozone industry output tumbles, raises questions on rate hike

Eurozone industrial output posted in November its biggest fall in nearly three years, data showed yesterday, stoking concerns about the currency bloc’s economic growth in the final quarter of 2018 and casting doubt over the timing of the next rate hike. The European Union’s statistics office Eurostat estimated that industrial production in the 19-nation eurozone tumbled by 1.7% in November month-on-month, its worst reading since February 2016, after a modest, downwardly revised 0.1% rise in October.Economists polled by Reuters had expected a drop but smaller than official estimates show.

A euro currency

A euro currency symbol sits on a eurosystem sign outside the European Central Bank headquarters in Frankfurt. Low growth and an easing of the inflation rate in December from the ECB’s target make a rate hike this year less likely, ING economist Bert Colijn said.

Markets expectations were for a 1.5% monthly drop and a 2.3% fall year-on-year. The poor output data increased pessimism about the bloc’s growth, which seems now more likely to remain slow in the last three months of last year. “The eurozone has clearly shifted down a gear,” said Andrew Kenningham, an economist at research firm Capital Economics. He said the bloc could still eke out a small increase in its gross domestic product in the last quarter, but the new output figures sent a negative signal. The eurozone’s economy grew by only 0.2% in the third quarter, down from growth of 0.4% in the second quarter.

Hopes of a rebound are now receding. Despite better-than-expected retail trade data in November which showed consumers are still willing to spend, a gloomier mood among investors is likely to affect investment. The output reading fell mostly because of a large drop in the production of capital goods, such as machinery. Slower growth in the last quarter could force the European Central Bank to review its forecast of a 1.7% GDP rise for all-2018.Low growth and an easing of the inflation rate in December from the ECB’s target make a rate hike this year less likely, ING economist Bert Colijn said. The ECB promised in December to keep rates at current record lows at least until the summer and also made no attempt to change market expectations that a first post-crisis interest rate rise will come only in early 2020.

The weak eurozone output data followed negative readings in the bloc’s main economies published in recent days, which prompted economists to raise the risks of recession in Germany and Italy. Germany, the largest economy in the eurozone, saw its industrial output fall by 1.9% in November on the month against earlier forecasts of a 0.3% rise, data released last week showed. Production also fell markedly and by more than predicted in France and Italy, the second and third biggest economies in the bloc, national statistics offices said last week. At eurozone level, the fall was mostly caused by the large monthly 2.3% drop in the production of capital goods and by a 1.7% fall in the output of durable consumer goods such as fridges.

Sources and photo-credits: Reuters, Gulf Times