THE RAPID pace of the euro zone’s economic contraction shows scant sign of slowing, with industrial production down almost 20 per cent year-on-year in February and inflation dissipating, official data showed yesterday.
The 18.4 per cent fall in output in the 16-country region – the largest since records began in 1990 – highlighted the scale of the impact of the global slowdown.
Monthly comparisons offered little sign of stabilisation, with the 2.3 per cent drop recorded compared to January only slightly lower than the 2.4 per cent fall reported a month earlier.
Compared with the US or UK, the “glimmers of hope are less prevalent in the euro zone”, said Colin Ellis, European economist at Daiwa Securities SMBC.
In the US, there was evidence that the inventory cycle was turning more positive for growth but, in the euro zone, higher levels of stocks could act as a brake on activity until the second half of the year, Mr Ellis said.
The data suggested the rate of euro-zone contraction might even have accelerated. First-quarter gross domestic product could have declined faster than the 1.6 per cent fall reported in the last three months of 2008, economists said.
With euro-zone economic trends typically following the US after a few months’ lag, the only signs of improvement so far have been confidence and activity surveys for March pointing to, at best, a slightly slower rate of contraction.
The decline in industrial production came despite government incentives to boost car sales, which suggested car companies were still destocking, said Peter Vanden Houte, euro-zone economist at ING. Production could stabilise in the second quarter, he said, “but to have a real recovery, we probably have to wait until the second half of the year”.
Germany, the euro zone’s largest economy, has been particularly affected because of its reliance on exports. Its industrial output was more than 20 per cent lower in February than a year ago – as it was in Spain and Italy. France recorded a fall of 16.3 per cent.
The slowdown in economic activity continues to feed through into lower price pressures. Eurostat said yesterday the annual euro-zone inflation rate fell from 1.2 per cent in February to just 0.6 per cent in March – the lowest since records began in the early 1990s.
That suggested an undershooting of the European Central Bank’s target of a rate “below but close” to 2 per cent annually.
Much of the decline has been due to lower energy prices. But core inflation, excluding energy and other volatile prices, is also slowing markedly, from an annual rate of 1.7 per cent in February to 1.5 per cent in March – the lowest for six years. – (Copyright The Financial Times Limited 2009)
