Euro area industrial production rises for second month in a row

European industrial production unexpectedly rose for a second month in August as increasing output in countries from France to Portugal and Italy offset a German slump.

Production in the 17-nation euro area advanced 1.2 per cent from July, when it rose 1.1 per cent, the European Union’s statistics office in Luxembourg said today. That’s the biggest gain since November 2010. Economists forecast a drop of 0.8 per cent, the median of 32 estimates in a Bloomberg News survey showed. In the year, output increased 5.3 per cent.

Europe’s export-led recovery is losing some momentum as governments struggle to contain the region’s 19-month fiscal crisis just as global demand falters. Euro-region manufacturing output contracted in September, economic confidence plunged to the lowest in almost two years and the International Monetary Fund lowered its growth forecasts for this year and next.

“We’ll still have a relatively robust third quarter in the euro region,” said David Milleker, chief economist at Union Investment GmbH in Frankfurt, one of two economists in the Bloomberg survey who forecast an increase. “Still, pressure is increasing and that’s obviously a reason for concern. We have a series of negative factors.” In the 27-member European Union, output rose 0.9 per cent from July, today’s report showed. Among the member states for which data are available, production rose in 12 and dropped in 10.

Portugal had the highest monthly gain.

GERMAN SLUMP
In Germany, Europe’s largest economy, which has powered the region’s economic expansion, industrial output dropped 1 per cent from July, when it rose 3.9 per cent. In France, the region’s second-biggest economy, production advanced 0.6 per cent, while Spain reported an increase of 1.3 per cent. In Ireland and Italy, output also rose in that period. Greece reported a drop of 1.4 per cent.

The economy may struggle to gather strength after expanding just 0.2 per cent in the second quarter. Commerzbank AG said in an emailed note last month that the region “looks set to slip into recession” over the coming months, when forecasting the economy to stall in 2012.

The commission on September 15 cut its euro region growth forecasts for the second half and warned the economy may come “close to standstill at year-end.” The IMF in Washington on September 20 also lowered its growth projections for the euro region, Germany and France for this year and next.

‘DOWNSIDE RISKS’
Daimler AG, the world’s largest maker of heavy-duty vehicles, said on September 19 it expects truck sales to keep growing, even as global growth falters. German rival MAN SE is monitoring the impact on demand from Europe’s crisis.

Euro region output of capital goods jumped 2.1 per cent from July, when it rose 3.2 per cent, the statistics office said. Production of intermediate goods and non-durable consumer goods rose 1.7 per cent and 1.1 per cent, respectively. Energy output failed to grow after rising 0.1 per cent in July.

The European Central Bank on October 6 kept its benchmark interest rate at 1.5 per cent and extended liquidity measures to support banks. President Jean-Claude Trichet, who will be replaced by Italy’s Mario Draghi at the end of the month, said he sees “intensified downside risks” to the growth outlook.

“The crisis has reached a systemic dimension,” Trichet told European lawmakers in Brussels yesterday. “Sovereign stress has moved from smaller economies to some of the larger countries.”

‘BRINK OF RECESSION’
European officials are seeking to meet an end-of-month deadline set by French President Nicolas Sarkozy to get to grips with the crisis, which has pushed Greece close to default. Governments are working out how to scale up the European Financial Stability Facility’s firepower without requiring another round of parliamentary approvals.

Trichet along with US Treasury Secretary Timothy F Geithner this week is scheduled to attend a Group of 20 finance chiefs meeting in Paris as investors grow increasingly concerned that the fiscal crisis will hurt global growth.

“The outlook for the world’s major economies is continuing to darken,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in an e-mailed note before today’s report. “Many major western economies are teetering on the brink of recession as they struggle to repay inflated levels of debt.”