Euro area industrial production declined for a third straight month in November, adding to signs that the economy failed to expand in the fourth quarter as leaders struggled to quell the region’s fiscal crisis.
Production in the 17-nation euro area fell 0.1 per cent from October, when it dropped a revised 0.3 per cent, the European Union’s statistics office in Luxembourg said on Thursday. Economists had forecast a decline of 0.3 per cent, the median of 26 estimates in a Bloomberg News survey showed.
Europe’s economy is edging toward a recession as governments toughen budget cuts, eroding consumer spending, and global export demand weakens. Economic confidence dropped to the lowest in more than two years in December and manufacturing contracted. The European Central Bank (ECB) will probably keep borrowing costs at a record low on Thursday.
“The figures on Thursday were pretty disappointing,” Ben May, a European economist at Capital Economics in London, said by telephone. “Other indicators continue to look very weak. It’s very likely that the economy contracted in the fourth quarter and we don’t think it’s going to be a one-off blip. We think a recession is looking inevitable.”
The euro region economy probably expanded 1.6 per cent in 2011 and growth may slow to 0.3 per cent in 2012, the ECB said on December 8.
German output
The ECB’s actions probably failed to keep the economy from cooling after gross domestic product rose just 0.1 per cent in the third quarter. European economic confidence slumped last month and unemployment held at 10.3 per cent in November, the highest in more than a decade. German factory orders plunged in November.
In Germany, Europe’s largest economy which has driven the region’s economic expansion, output slumped one per cent from October, when it rose 0.8 per cent, on Thursday’s report showed. Italy and France reported gains of 0.3 per cent and 1.1 per cent.
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European companies are under pressure to lower costs as the debt crisis forces governments from Italy to Spain to toughen spending cuts just as export demand weakens. Royal Philips Electronics NV, the world’s biggest maker of light bulbs, said on January 10 that fourth-quarter earnings before interest, taxes and amortisation slumped 45 per cent.
The latest gloomy economic indicators in Europe contrasted with the US, where retail sales probably rose in December as Americans bought discounted holiday items, giving the economy a boost entering 2012, economists said before a report on Thursday.
The projected 0.3 per cent gain would follow a 0.2 per cent advance in November, according to the median forecast of 75 economists surveyed by Bloomberg News.
“Holiday shopping was fairly healthy, with retailers aggressively discounting items,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “The American consumer can continue spending at a modest to moderate clip now that employment growth is picking up and household finances are in somewhat better shape.”
Policy shift
In Asia, China’s inflation rate fell to a 15-month low and producer-price gains were the smallest in 2 years in December, leaving the government more room to support growth as a global slowdown hurts exports.
Consumer prices rose 4.1 per cent from a year earlier, the National Bureau of Statistics said in Beijing on Thursday. That may allow Premier Wen Jiabao to proceed with a shift in policy focus to bolstering expansion as Europe’s debt crisis crimps overseas demand and officials sustain a campaign to cool property prices. Imports and exports increased the least in two years last month, excluding seasonal distortions, and a report next week may show the world’s second-largest economy expanded at the slowest pace in 10 quarters.
“Inflation will no longer be a constraint on policies and officials will look more to other economic data to decide if there is a need to ease policies,” said Ken Peng, a Beijing- based economist with BNP Paribas SA, the only bank to correctly forecast the inflation reading. “Still, policy makers may remain wary of inflation for a while because the number still exceeded the yearly target.”