Industrial Output Falls Across Europe as Recession Deepens

By Jana Randow

Jan. 9 (Bloomberg) -- Industrial production plunged throughout Europe in November as the global recession deepened, adding pressure on the European Central Bank to cut interest rates.

Industrial output in Germany, the euro area’s largest economy, fell a seasonally adjusted 3.1 percent from October, extending the worst decline since data for a reunified Germany was first compiled in 1991, the Economy Ministry in Berlin said today. In France, production tumbled 2.4 percent in November, the fourth monthly decline, the statistics office in Paris said.

Companies are scaling back production and cutting jobs after the global financial crisis pushed Europe into a recession last year. Interest-rate cuts of 175 basis points and billions of euros in stimulus measures have failed to reverse a slide in consumption and confidence. The 16-nation euro area will shrink in 2009 for the first time since the single currency began a decade ago, according to forecasts from ECB staff and the International Monetary Fund.

“The ECB still has room for maneuver,” said Dominic Bryant, an economist at BNP Paribas in London. “There’s not much point in waiting when you know that you’ll get bad data. It doesn’t take a genius to work out that the fourth quarter will be extremely weak in the eurozone.”

Industrial production in November also declined in Spain, Greece, Slovenia and the euro area’s newest member, Slovakia, reports released today show. It also fell in Britain, which has resisted pressure to ditch sterling for the euro.

Worsening Recession

Central bankers have refused to give any guidance on the future path of borrowing costs after the ECB delivered the biggest rate cut in its 10-year history in December, bringing down interest rates to 2.5 percent. President Jean-Claude Trichet said on Dec. 30 looser monetary policy is ”far from having been fully transmitted to the economy,” signaling the bank may pause next week.

Today’s data add to evidence that Europe is sliding deeper into recession. ECB staff in December projected the euro-area economy to contract by an average of 0.5 percent this year. While it is premature for the bank to revise its projections, it “cannot rule out that economic activity in 2009 may turn out to be weaker than suggested,” ECB Vice President Lucas Papademos said on Jan. 3.

European economic confidence plunged to a record low last month as production and employment expectations deteriorated, the European Commission said yesterday. The euro-area jobless rate increased to 7.8 percent in November from a historic low of 7.2 percent between November 2007 and March 2008.

Rate Cuts

Europe’s inflation rate fell to 1.6 percent in December, the lowest in more than two years after oil prices retreated 72 percent from a record $147 a barrel in July. If the rate falls too far below the ECB’s goal of just below 2 percent “we can be certain that European monetary policy will respond with interest-rate reductions,” ECB Governing Council member Vitor Constancio said on Jan. 5.

In December, EU leaders pledged economic-stimulus steps worth 200 billion euros ($274 billion), or about 1.5 percent of gross domestic product, to combat the fallout from the financial crisis. The German government is considering a second, 100 billion-euro fund to directly aid non-financial companies. French President Nicolas Sarkozy said yesterday the proposal is an “excellent idea” that France will emulate.