Unexpected drop in euro zone output clouds recovery hopes

Wed Aug 13, 2014 6:10am EDT
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By Martin Santa

BRUSSELS (Reuters) - Euro zone industrial production contracted unexpectedly in June, hurting hopes for a stronger recovery as the region feels the effect of conflict in Ukraine, Iraq and and Gaza.

Factory output fell 0.3 percent on the month in June after a 1.1 percent drop in May, data showed on Wednesday, compared with market expectations of a 0.3 percent rise.

Production was flat compared with a year ago, after rising an upwardly revised 0.6 percent rise in May. Economists polled by Reuters had forecast a 0.1 percent annual increase in June. The annual reading was the lowest since August 2013.

"This is a very disappointing figure after the already strong contraction in May," said Peter Vanden Houte, chief euro zone economist at ING.

The monthly drop was caused mainly by a 1.9 percent drop in production of non-durable consumer goods, down for a second consecutive month, and a 0.7 percent decline in energy production, which was up in the previous three months.

A recovery by the 9.6 trillion-euro economy is struggling to gain momentum a year after exiting a recession. High unemployment, sluggish reforms and the fallout from conflict in Ukraine, Gaza and Iraq are holding it back.

The latest sign of just how fragile the euro zone's economic rebound remains came from Germany on Tuesday, where investor sentiment dove to its lowest since December 2012 on concern about the impact European sanctions against Russia will have.

Eurostat will publish a flash estimate of second-quarter economic growth on Thursday. Economists had expected expansion of 0.2 percent on the quarter in the three months to June, the same pace as seen in the first quarter.   Continued...

A huge euro logo is pictured next to the headquarters of the European Central Bank (ECB) before the bank's monthly news conference in Frankfurt August 7, 2014.   REUTERS/Ralph Orlowski