Euro Zone Industrial Sector Slump Continues, Raising Fears That Recession Intensified In Q4

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  • Merkel Draghi Jan 2013 5
    ECB President Mario Draghi and German Chancellor Angela Merkel.
  • Euro Zone
    Euro zone GDP probably stopped contracting in the second quarter after a record six quarters of decline.
  • Merkel Draghi Jan 2013 2
    ECB President Mario Draghi and German Chancellor Angela Merkel.
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Euro zone industrial production unexpectedly fell in November, the third consecutive monthly drop, as sharp declines in Italy and Spain offset encouraging signs of growth in Germany, raising fears that the recession in the 17-country currency bloc has continued into the fourth quarter of 2012.

Output in the euro area dropped 0.3 percent from October, when it declined a revised 1 percent, according to Eurostat, the EU’s statistical office. The monthly fall in production in November was weaker than the consensus forecast of a rise of 0.2 percent and followed large monthly falls in both September and October.

Production has fallen by 3.5 percent since August and is at its lowest level since April 2010. The drop in output was broad based by sector – durable goods production recorded another sharp fall, supporting the view that consumers are reluctant to spend.

By country, the data were a mixed bag. Particularly sharp monthly falls in Italian and Spanish production left output in both economies over 7 percent lower than a year earlier – in the euro zone as a whole production was down 3.7 percent on an annual basis.

Meanwhile, the rise in Dutch output meant that it is now the only major euro zone economy to have a positive annual growth rate. Germany and France recorded small monthly gains, but output in both economies was down 3 percent from a year earlier.

Energy production dropped 1.6 percent after a 0.3 percent decline in October. Output of durable and non-durable consumer goods fell 1.1 percent and 1.2 percent, respectively, while production of capital goods rose 0.7 percent.

"November's euro zone industrial production data provided further strong signs that the recession in the region as a whole intensified in the final quarter of last year," said Ben May, European economist at Capital Economics, in a note to clients.

The recent downturn in euro zone production means that even if output increased by 2 percent in December, it would still have fallen by 1.8 percent in the last three months of 2012 as a whole, significantly weaker than the 0.3 percent gain recorded in the third quarter. Other things being equal, that would knock about 0.4 percent off gross domestic product growth, May said.

Although industrial output’s negative contribution to GDP growth will be partially offset by a positive contribution from net trade, euro area economies are set to post a weak GDP print in the October-December period, according to Societe Generale economist Michel Martinez.

The European Central Bank estimates the euro area economy contracted 0.5 percent last year and will shrink 0.3 percent in 2013.

Businesses in the crisis-hit region may be feeling more confident but there's no sign of that translating into better employment prospects yet.

Eurostat data published on Jan. 8 showed unemployment in the euro zone hit a record high of 11.8 percent in November, leaving 18.8 million people without work -- 2 million more than a year ago.

At nearly 27 percent, Spain has the highest unemployment rate in the European Union, and youth unemployment is more than twice as high, at 56 percent.

Only Greece, which is facing a sixth year of recession, has a greater proportion of young people out of work.

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