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Euro zone factory output falls sharply in January

A structure showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt.

ALEX DOMANSKI/REUTERS

Output at euro zone factories fell more than expected at the start of 2013 and production in France and Germany slipped in the latest sign the bloc is struggling to emerge from recession.

Industrial production in the 17 countries sharing the euro fell 0.4 per cent in January from December, the EU's statistics office Eurostat said on Wednesday. Economists polled by Reuters had forecast a 0.1 per cent fall.

Factory output, two-thirds of which is generated by Germany, France and Italy, was also down 1.3 per cent on an annual basis in January, showing just how few cars, televisions and other manufactured goods like fridges Europeans are buying at a time of record unemployment.

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The poor state of manufacturing is a reminder to euro zone heads of state meeting for a summit in Brussels on Thursday evening of how far the bloc has to go to build a recovery after three years of a devastating public debt crisis.

Production of machinery used to make other goods, an indicator of future business, fell 1.2 per cent in January from the previous month and output of durable consumer goods, such as cars and furniture, fell 1.4 per cent in the same period.

Germany and France, the euro zone's two biggest economies, both recorded a contraction in manufacturing, while data for Italy was not provided by Eurostat.

The euro zone reading may provide the European Central Bank with more of an incentive to consider cutting interest rates to below the current 0.75 per cent rate later this year to lower the cost of borrowing for companies and households.

"The ECB is reluctant to use the remaining room to manoeuvre. Cuts in the main policy rate are being kept for an even rainier day," David Mackie, an economist at JPMorgan, wrote in a research note. "We believe that the ECB should respond to this macro outlook," he said.

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