Euro zone industrial output rises more than expected

Euro zone industrial production rose more than expected in May, data released on Friday showed, offsetting declines in the past two months and defying gloomy forecasts caused by prolonged trade tensions.

The positive reading could undermine European Central Bank policymakers who favor more stimulus to counter weak growth and low inflation in the euro zone, although economists warn the improvement may only be temporary.

The EU statistics agency Eurostat said euro zone factory output increased by 0.9% in May on the month, above market consensus expectations of a 0.2% rise. The most pessimistic expected drops up to 0.5%.

Eurostat also revised upward its April data, which now shows a 0.4% drop in production instead of the 0.5% estimated earlier.

Production had fallen in March by 0.3% and was flat in February, after a 2.0% increase in January.

The rise in May was caused by a surge in the output of non-durable consumer goods, such as clothes and packaged food, which went up by 2.7%.

In a sign that industry managers were optimistic about consumers’ long-term purchasing plans, the output of durable goods, like refrigerators and cars, grew by 2.3%. Production of capital goods, like machinery, rose 1.3%.

“Don’t let the numbers fool you,” said Bert Colijn, an economist at Dutch ING bank. “Without an improved trade outlook, manufacturing could be in for a weak second half of the year.”

Higher risks from global trade tensions led the EU Commission this week to cut the euro zone growth outlook for next year and leave unchanged the forecast of a slowdown this year.

On the year, industrial production fell by 0.5% for its third drop in a row.

ECB policymakers agreed last month on the need to be ready to provide more stimulus to the euro zone economy in an environment of “heightened uncertainty”, an ECB account of the meeting showed on Thursday.

Reuters

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell