Eurozone output up for first time in a year - Falls in Spain hold region back

Eurozone output up for first time in a year - Falls in Spain hold region back
By Gerrit Wiesmann in Frankfurt
Copyright The Financial Times Limited 2009
Published: July 14 2009 13:09 | Last updated: July 14 2009 13:09
http://www.ft.com/cms/s/0/5be70230-7067-11de-9717-00144feabdc0.html


The volume of goods leaving eurozone factories in May picked up for the first time since last summer, but this came along with signals that German investors think any rebound there could be sluggish rather than strong.

Industrial production in the 16-member currency region rose 0.5 per cent in May, although output was still 17 per cent below the level seen the year before, the European Union’s statistics office said.

Strong monthly increases reported by Germany, France and Italy in recent days had led economists to expect a bounce of 1 per cent in May, but these hopes were dashed by output decreases in Spain and some smaller countries.

“All told, the weaker-than-expected rise on the month was something of a surprise and will dampen any hopes of a strong rebound in euro-area activity,” said Colin Ellis at Daiwa Securities.

Compounding this caution, German investor sentiment in June decreased for the first time after eight straight months of gains, according to the ZEW Centre for European Economic Research.

The ZEW’s index of economic expectations fell to 39.5 points from 44.8 in May, disappointing most economists, who had expected this measure of financial-market sentiment to continue rising.

Their optimism had grown after last week’s news that orders and output recorded by German companies had risen in May - a sign that Europe’s largest economy might be clawing its way back from recession.

Andreas Rees at Unicredit said the ZEW trend now suggested German growth would return in the second-half of the year, only to slow again at the start of 2010 as companies stopped stocking inventories and stimulus spending ended.

Although German officials last week cheered signs that the economy had bottomed out, Berlin still expects the economy to shrink by up to 6 per cent this year, providing a significant drag on the entire eurozone.

The International Monetary Fund last week said it expected gross domestic product in the currency bloc spanning 16 countries to shrink 4.8 per cent this year and a further 0.3 per cent in 2010.

Despite the recent increase in orders and output in some countries, many economists still expect this trend to turn out short-lived as companies fill up depleted stocks and then stop purchasing again.

”For significant, sustainable manufacturing recovery to develop [in the eurozone] there needs to be an extended pick up in orders,” said Howard Archer at HIS Global Insight. “This currently remains highly uncertain.”