Euro zone industrial output falls; ministers debate weak economy

[October 14, 2014]  By Jan Strupczewski

BRUSSELS (Reuters) - Euro zone industrial production fell more than expected in August, reflecting a slump in the output of capital goods used for investment and raising concern that the economy is weaker than previously thought.

The European Union's statistics office Eurostat said on Tuesday that production in the 18 countries sharing the euro fell 1.8 percent in August from July for a 1.9 percent year-on-year decline.

Economists polled by Reuters had expected a 1.6 percent monthly fall and a -0.9 annual fall.

Eurostat also revised down industrial output growth for July to 0.9 percent month-on-month from 1.0 percent and to 1.6 percent year-on-year from 2.2 percent.

"The worrying fact is that August's month-on-month drop of 1.8 percent was more than double July's increase of 0.9 percent so the underlying trend looks weak and does not bode well for overall euro zone industrial production in the third quarter," said Howard Archer, economist at IHS Global Insight.

"Production looks likely to have seen appreciable quarter-on-quarter contraction in the third quarter as it would take an increase of 2.6 percent month-on-month in September for output to have been even flat over the quarter. This is not good news for euro zone GDP growth hopes in the third quarter," he said.

The main factor behind the fall was a 4.8 percent drop in the output of capital goods, which underlines the weakness of investment in the euro zone. Year-on-year investment goods production fell 3.7 percent -- the most of all components.

European finance ministers, meeting in Luxembourg, are debating how to increase investment to spur moribund euro economies and the European Commission is to come up with details of a 300 billion euro ($380 billion) 3-year investment scheme by the end of January.

"Today's data point to a loss of growth momentum in the euro zone," said Edoardo Campanella, economist at UniCredit Research.

"Still, GDP (gross domestic product) in the third quarter remains on track for a re-acceleration (after having stagnated in the second quarter), although the August industrial production decline indicates downside risks to our 0.3 percent quarter-on-quarter GDP forecast," he said.

The biggest fall in industrial production was in Germany, where it declined 4.3 percent month-on-month and 2.8 percent year-on-year, pointing to continued weakness in the euro zone's biggest economy that contracted 0.2 percent in the second quarter.

(Reporting By Jan Strupczewski; Editing by Ruth Pitchford)

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