Industrial production in the Eurozone fell at a record annual pace in February, while annual inflation in March dropped to an all-time low, adding pressure on the European Central Bank to take more unconventional measures in its next Governing Council meeting.

Thursday, data from the Eurostat showed that industrial output fell 18.4% year-on-year in February after falling a revised 16% in January. The decline was slightly quicker than the expected fall of 18%. Output was down 2.3% month-on-month following a revised 2.4% decline in January, while economists had expected a 2.5% fall for February.

Eurozone industrial production is set to post a record decline in Q1 although the downside momentum appear to have stabilized in recent months, Dresdner Kleinwort analyst Rainer Guntermann said. The scene is set for a 4.5% fall in gross domestic product, or GDP, in 2009, he added.

Results of a monthly survey carried out by the European Commission had showed in late March that industrial production would remain subdued in March.

Companies in the region were forced to shed employees and to lower production and investment due to the worst recession since the World War II hit the global economy.

In its April monthly bulletin, the European Central Bank had said that reflecting the impact of the financial market turmoil, economic activity has weakened markedly in the euro area, as domestic demand contracted in parallel with the downturn in the world economy.

The central bank has also noted that economic activity in the euro area has remained very weak in early 2009 and the situation is likely to remain very subdued for the remainder of the year. However, a gradual recovery is seen in 2010.

Late in March, the Organisation for Economic Co-operation and Development had said in its interim economic outlook that the currency bloc was forecast to contract 4.1% in 2009 and by 0.3% next year.

In the EU27, production dropped 1.9% month-on-month in February and 17.5% from the previous year.

In a separate report, the Eurostat confirmed euro area annual inflation at 0.6% in March, which was the lowest rate since the launch of euro ten years ago. Consumer price inflation eased from February's 1.2% and 3.6% in the year-ago period.

Monthly inflation stood at 0.4%, in line with economists' expectations. Core inflation that excluded energy, food and tobacco slowed to 1.5% in March from 1.7% in February.

Given the fact that the Eurozone is set to contract in 2009, Guntermann said inflation is more likely to continue to fall than rise. The decline in headline inflation to 0.6% is just a stopover on the way below zero and the fall in the core rate to 1.5% starts to echo the recession.

On the same day, reports from two of the Eurozone member countries, Italy and Austria, showed that inflation slowed in March. Italy's statistical office ISTAT said inflation eased to 1.2% in March from 1.6% in February, while the Statistics Austria said inflation decreased to 0.8% from 1.3%.

In April, the ECB has lowered its key interest rate to a fresh low of 1.25% and ECB President Jean-Claude Trichet had signaled that there is still room to cut the benchmark interest rate for Eurozone. He also said the 16-nation currency bloc could announce further non-standard policy measures in the next rate-setting session in May to spur the economy.

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