Euro zone industrial output slumps in May

Euro zone industrial output posted its biggest monthly fall in May since 1992, data showed today, pointing to a slowing economy hit by soaring inflation and a strong euro.

Industrial production in the 15-country zone sank 1.9 per cent month-on-month and 0.6 per cent in annual terms, European Union statistics office Eurostat said. The monthly decline was the largest since December 1992.

Eurostat revised upwards its production data for April to a 1 per cent increase on the month and a 4 per cent annual rise from the previously reported 0.9 per cent and 3.9 per cent gains.

Output of durable consumer goods fell the most among the industrial production components, by 3.3 per cent on the month and 5.2 per cent year-on-year, pointing to weakening private consumption.

Germany and France, the euro zone's largest and second-biggest economies, saw their industrial production shrink 2.6 per cent month-on-month. Italy contracted by 1.4 per cent.

Industrial output figures are volatile and influenced by calendar factors, but some economists and policymakers fear the euro zone economy may have contracted or stayed flat in the second quarter just as inflation reached record highs.

Separately, PricewaterhouseCoopers (PwC) has forecasts that Irish GDP growth will slow to 0.4 per cent this year, the lowest annual rate of growth for 25 years.

In its quarterly economic analysis PwC said this was the lowest growth forecast for the eurozone and UK region for 2008.

Rising unemployment, the housing slump and restrictions on access to credit has seen consumer confidence fall with key trading partners the UK and US unable to provide any respite.

The PwC report notes that further ECB rate increases could “influence the duration and scale of the current Irish economic slowdown”.

It adds that the housing-led downturn was spreading to other sectors. In 2009, PwC is forecasting GDP growth of 2.2 per cent and inflation as measured by the harmonised index of consumer prices is expected to fall to 2.9 per cent from the 3.9 per cent recorded in June.

The European Central Bank has raised interest rates to counter inflationary pressures despite the growth slowdown. A member of its Governing Council warned last week more tightening could be needed even if some economies were shrinking.

Additional reporting Reuters