Eurozone industrial output dips after strong start to year

AP News
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Posted: Apr 13, 2016 6:02 AM

LONDON (AP) — The eurozone's industrial sector looks set to be a major contributor to first quarter economic growth across the 19-country region even after official figures Wednesday showed its production fell by a monthly 0.8 percent in February.

The decline reported by Eurostat was in line with expectations and largely due to a sharp decline in production of non-durable consumer goods and energy. All four of the eurozone's top economies — Germany, France, Italy and Spain — recorded monthly output falls.

Despite the drop, eurozone industrial output remains sharply higher this year following the 1.9 percent increase reported in January. If output doesn't fall dramatically in March, the sector, which accounts for around 20 percent of eurozone economic output, will make a positive contribution to first-quarter economic growth across the region.

Research firm Capital Economics estimates that eurozone industrial output will have risen by 1 percent in the first quarter overall if March comes in flat. That would represent the sector's best performance in five years and would provide further evidence that lower oil prices and a relatively weak euro have helped the sector, particularly in export markets.

The first estimate of economic growth in the first three months of the year is due to be published on April 29. Few economists think that the eurozone economy will see any material change from the recent trend of fairly muted growth. Most expect quarterly growth to come in at the 0.3-0.4 percent range it's been in since spring last year.

Still, quarterly growth at that rate may not be so bad given the uncertainties that haunted the global economy in the first quarter, particularly the volatility in financial markets, which saw stocks around the world take a hammering and oil prices slide to 13-year lows.

Though markets have stabilized and recovered over the past few weeks, there are other challenges that the eurozone industry has to face. The rebound in energy prices could be painful for a region that mostly imports crude, whose prices has pushed up to $40 a barrel against predictions earlier this year that it was heading down to $20. And the euro's steady rise to five-month highs around the $1.14 mark could weigh on demand for eurozone exports.

Recent surveys of the industrial sector suggest a slowdown is taking place after a strong start to the year.