Eurozone output falls most since early 2009

Eurozone industrial production fell 2 percent in September, pointing to a sharp contraction towards the end of the year and a growing threat of a fall into recession. The slide in output at factories in the 17 nations sharing the single currency was the biggest fall since February 2009 - when the economy was reeling from the worst financial crisis since the 1930s - European Union statistics agency Eurostat said.
"It clearly doesn't bode well for the future," said Francois Cabau, an economist at Barclays Capital. "If we don't see some resolution of the eurozone sovereign debt crisis, business confidence could go even lower." He expected a 0.2 percent contraction in the region's economy in the fourth quarter. Analysts polled by Reuters expect an expansion of only 0.2 percent in the second quarter. Two consecutive quarters of negative growth signals a fall into recession.
Economists had feared the figures on industrial output would be slightly worse, forecasting a 2.2 monthly decline in September, but there was some output growth in smaller eurozone economies such as Austria, Slovakia and Spain. That could by no means offset falls in Germany and France, however, which fell 2.9 percent and 1.9 percent respectively. Industrial orders in September in Germany slumped the most since January 2009, the German economy ministry said earlier this month. Heavily-indebted Italy, which looms large over Greece as the biggest concern to the eurozone's survival, saw industrial output tumble 4.8 percent in September.
The ECB cut interest rates by 25 basis points to 1.25 percent this month under new president Mario Draghi, who warned of a mild recession in the eurozone. Many economists expect another cut in December. Stronger-than-expected figures from industry in August, when output expanded 1.4 percent, showed the eurozone economy providing some resilience to cooling growth in Asia and the United States.
But declining orders in Europe have fed through to factories, and manufacturers are lowering production, hurt by government spending cuts and the sovereign debt crisis that is weakening business confidence. Compared to a year ago, industrial production rose 2.2 percent in September in the eurozone, below expectations of a 3.3 percent rise. For the 27-nation EU, output fell 1.3 percent on a monthly basis.
It rose 2.2 percent on an annual basis. Companies across Europe are warning shareholders that slowing demand could hit profits, as a mix of inflation, high unemployment and government austerity keeps shoppers home. At the same time, the eurozone's debt crisis is making investors nervous and some fear a euro break-up that would trigger financial chaos similar to, or worse, than the collapse of US investment bank Lehman Brothers in 2008.