March production dragged down by growth dips in ‘big-four’ economies and the energy demand declining in warm winter though April could bring cheer, reports Team IFM
Brussels, May 16: Lacklustre industrial production in the four major euro zone economies and a weakened demand for energy dragged down regional output in March, official data released on Wednesday showed even as an independent surveyor held out some hope, saying the manufacturing sector would gain traction in April and see an upturn.
Data from Eurostat, which compiles detailed statistics on the European Union and candidate countries, showed seasonally adjusted industrial production shrank 0.3 percent in the 18-nation euro zone in March compared with February.
Similarly, it contracted 0.2 percent in the 28-member European Union, the statistical office said. In February, industrial production in the two regions went up by 0.2 percent and 0.3 percent, respectively.
The overall drag was triggered off basically by the big four regional economies witnessing a decline in output in March – Germany 0.2 percent, France 0.7 percent, Spain 0.6 percent and Italy falling by 0.5 percent.
The month under review witnessed the steepest drop in energy production in nearly five years. It was also the fourth straight month of power output drop, owing in part to the drop in energy demand in a much milder winter.
“This slowdown is totally accounted for by very weak production of energy goods, down 4 percent quarter-on-quarter on the back of the unusually warm weather conditions prevailing over the winter,” Reuters quoted Marco Valli, chief euro zone economist at Italian bank UniCredit, as saying.
Quarterly GDP growth in the euro zone is also forecast to improve slightly to 0.4 percent, the fastest in three years, from 0.3 percent in the three months to December. Global economic growth eased to a six-month low in April, showed an independent study released last week.
According to European Central Bank President Mario Draghi, the euro area was undergoing “moderate recovery” as expected. He also indicated last week that policymakers would decide on the course of action after assessing the June macroeconomic projections.
ING Bank economist Martin van Vliet told wire service RTT: “With growing unease in the Governing Council about the ‘projected path of inflation’, the ECB looks set to back up its recent dovish rhetoric with action at next month’s policy meeting.”
Reuters quoted “sources” to say ECB could even announce stimulus in the form of rate cuts.”
The second quarter is likely to usher in better days for regional manufacturers, with economy tracker Markit saying euro zone factory recovery broadened in April.
“Particularly welcome is the news that previously struggling countries such as Spain and Italy are now also seeing robust growth, with the surveys indicating growth close to 1 percent in both cases,” said Markit’s Chief Economist Chris Williamson in a statement.
DRAGGED BACK
Month-on-month industrial production data in the euro zone was in line with analysts’ expectations, and showed a 0.3 percent contraction in March. It also came on the heels of a 0.2 percent increase in the previous month.
But what went against forecasts was the year-on-year output comparison. According to the Eurostat data, industrial production dropped 0.1 percent in the euro area in March compared with the year-ago period, though it increased by 0.5 percent in the 28-nation European Union.
The annual dive in the production index stoked concerns that recovery would take time. Year-on-year, production fell a working-day adjusted 0.1 percent, after gaining 1.7 percent in the previous month.
Economists had expected between 0.9 percent and 1 percent growth, with not a single analyst among those polled by Reuters forecasting an annual drop.
They also expected quarterly euro zone growth to accelerate to around 0.4 percent in the January-March period this year from 0.3 percent in October-December of 2013, but to slow down to around 0.2 percent in April-June.
“Industrial output rose 0.2 percent in the first quarter over the last quarter of 2013, which implies that the euro economy should have also continued to expand at the start of the year,” said Christoph Weil, economist at Commerzbank. “That said, somewhat weaker growth looks likely in the second quarter,” Weil told Reuters.
Production also fell 0.3 percent from February in the euro area, and was due to production of intermediate goods falling by 0.8 percent, non-durable consumer goods by 0.5 percent, energy by 0.4 percent and capital goods by 0.3 percent. Durable consumer goods remained stable, Eurostat said.
Eurostat said that in the 28-nation European Union, the output fall of 0.2 percent was due to production of energy falling by 0.6 percent, intermediate goods by 0.5 percent, durable consumer goods by 0.4 percent, capital goods by 0.2 percent and non-durable consumer goods by 0.1 percent.
The largest decreases in industrial production were registered in Portugal (a fall of 4.8 percent), Lithuania (3.7 percent), Sweden (2.5 percent) and Greece (1.9 percent). The highest increases were in Ireland (up 5.6%), Denmark (3.1 percent) and Slovenia (2.0 percent).
The decrease of 0.1 percent in industrial production in the euro area in March this year, compared with March 2013, is due to production of energy falling by 11.9 percent and durable consumer goods by 0.9 percent, Eurostat said in a statement.
According to its data, non-durable consumer goods rose by 1.3 percent, intermediate goods by 2.2 percent and capital goods by 2.6 percent.
In the European Union, the increase of 0.5 percent is due to production of both intermediate goods and capital goods rising by 3 percent, and non-durable consumer goods by 1.8 percent. However, that of durable consumer goods fell by 0.3 percent and energy by 10.5 percent.
The largest decreases in industrial production were registered in the Netherlands (a 12.5 percent fall), Lithuania (down 10.2 percent) and Finland (down5.4 percent). The highest increases were recorded in Luxembourg (13.5 percent), Romania (9.6 percent) and Hungary (8.1 percent).
MANUFACTURING RISES
According to a Markit survey, the upturn in the euro zone manufacturing sector gained traction in April, with its final seasonally adjusted PMI rising to a three-month high of 53.4, up from 53 in March and the flash estimate of 53.3.
The PMI has signalled expansion for 10 successive months, with Ireland staying at the top of the PMI league table in April, with its pace of expansion hitting a 38-month record.
“April saw a broadening of the recovery, with PMI readings for all of the nations for which data are collected above the 50 mark that divides expansion from contraction,” Markit said. This was for the first time since November 2007.
Additionally, Markit said, levels of output and new business also increased across all of the nations, while price pressures remained on the downside. “Input costs fell at the fastest pace since July 2013, reflecting reports of successful price negotiations, competition among suppliers and lower prices for metals and food products,” it said.
Output charges, meanwhile, declined slightly for the second straight month. The Netherlands was the only nation to report an increase in output charges during the latest survey month.
“Regardless of the divergent rates of growth, perhaps the best take-away from the April survey is the news that all countries recorded PMI readings above the no change level of 50,” said Markit economist Williamson.
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