Output at factories in the euro zone tumbled at the end of 2011, data showed on Tuesday, reflecting the sick European economy, but policymakers and economists expect a recovery in 2012.
Industrial production in the 17 countries sharing the euro fell 1.1 percent in December from November, marginally less than the 1.2 percent slide forecast by economists in a Reuters poll. On an annual basis, factory output dived 2.0 percent, worse than economists' 1 percent estimate.
In Germany, the bloc's biggest economy, industrial production plunged 2.7 percent. The trend was echoed in retail sales that slid unexpectedly in December across the euro zone, the biggest drop in the Christmas period in three years.
European households cannot yet be relied on to help the euro zone pull out of its slump, even as the sovereign debt crisis shows signs of easing after the European Central Bank made unprecedented three-year loans available to banks late last year.
Joblessness reached a euro-era high of 10.4 percent in December, while inflation remains near recent peaks of 3 percent.
Belgium, Portugal and Greece are already in recession and the rest of euro zone is expected to struggle through a mild recession this year, although recent data suggests it may be mild and the German economy may avoid recession altogether.
The global economy appears to be picking up again, the value of the euro has fallen and large-scale easing of monetary policy is allowing market rates to drop, Ralph Solveen, an economist at Commerzbank, said before the data was released.
Sentiment indicators and the hard economic data should also point upwards in the coming months as long as the sovereign debt crisis does not noticeably escalate again, he said.
The International Monetary Fund forecasts a 0.5 percent contraction for the euro zone in 2012, but the European Commission is more optimistic and forecasts growth of 0.5 percent, although that could change when the executive releases its new forecasts on Thursday.
(Reporting By Robin Emmott)