Euro area industrial output expands less than estimated

Factory production in the 17-nation Euro area rose 0.7% from May, when it decreased a revised 0.2%

Euro area industrial output expanded less than economists estimated in June as the currency bloc's economy struggles to emerge from a record-long recession.

Factory production in the 17-nation Euro area rose 0.7 per cent from May, when it decreased a revised 0.2 per cent, the European Union's statistics office in Luxembourg said on Tuesday. That was less than the gain of 1 per cent projected by economists, according to the median of 37 forecasts in a Bloomberg News survey. June production rose 0.3 per cent from the year-earlier month, the first annual increase in 20 months.

Europe's manufacturing industry expanded in July for the first time in two years and business confidence improved for a third month, bolstering optimism that the economy edged back to growth last quarter after 18 months of contraction. Still, the Euro area jobless rate has risen to a record 12.1 per cent, and youth unemployment is more than 50 per cent in Spain and Greece.

European Central Bank President Mario Draghi said this month that recent data indicate the Euro area is through the worst of the slump and "tentatively confirm the expectation of a stabilisation in economic activity."

The Euro zone economy is estimated to have expanded 0.2 per cent in the second quarter, according to a separate Bloomberg survey of economists. Gross domestic product declined in the first quarter, a sixth consecutive contraction. The statistics office will release the latest GDP data on Wednesday.

Financial markets
Relative calm on financial markets has helped the euro area begin to recover from the longest slump since the debut of the single currency. The ECB has cut interest rates to their lowest ever and Draghi has pledged they will stay there or lower for an "extended period."

Europe's benchmark Stoxx 600 index has gained almost 10 per cent so far this year and was up 0.5 per cent to 307.62 at 9:43 am in London, reaching the highest since May. The euro has appreciated 1.7 per cent against the US dollar in the past month and traded at $1.3285, down 0.1 per cent on the day. Industrial output in Germany, Europe's largest economy, expanded 2.5 per cent in June after a 0.7 per cent drop a month earlier, Tuesday's report showed.

French output fell 1.5 per cent after a 0.3 per cent decrease. Production in Spain dropped 0.5 per cent, while Italy recorded a 0.3 per cent increase.

Production of capital goods rose 2.5 per cent in June after a 1.1 per cent drop a month earlier. Output of non-durable consumer goods rose 4.9 per cent after a 1.9 per cent decline. Energy production decreased 1.6 per cent.

Labor market
Rising unemployment is a potential drag on the economic recovery, though there are signs the labor market may be turning the corner. While the Euro-area jobless rate has held at a record since March, the number of unemployed people declined in June for the first time in more than two years, the statistics office said on July 31.

"The labour market remains the main bugbear of the Euro zone, as rising joblessness hurts growth and raises political and social tensions," said Rob Dobson, senior economist at Markit Economics. "But even here there was some better news."

The rate of job-cutting in the euro area eased to a 16-month low in July, Markit said in a report this month. Still, unemployment is forecast to rise to 12.4 per cent in the fourth quarter and to average 12.3 per cent next year, according to a Bloomberg monthly survey of economists.