Surprise output gain in biggest Euro states

City A.M. Reporter
Industrial output in France and Italy was surprisingly strong in August, boosting prospects for third-quarter growth in the eurozone's second- and third-biggest economies, new data shows.

French output posted a 0.5 per cent monthly increase compared with forecasts of a one per cent decline, while output in Italy leapt 4.3 per cent compared with expectations of a modest 0.2 per cent increase.

German industrial output dropped one per cent on the month in August, data showed last week, but the fall was smaller than expected. Data has also shown German exports hitting an all-time high in the same month.

The latest data runs against business surveys that have pointed to a significant slowdown in industrial activity in the eurozone since the beginning of the third quarter.

"The numbers clearly show a different picture than the scary drop in sentiment indicators," said ING economist Carsten Brzeski after Germany's export figures.

"For the time being the current situation remains good but expectations have weakened."

Underlining the decline in morale, a survey by Germany's Sentix research group on Monday showed eurozone investor sentiment hit its lowest in more than two years in October, due to the currency bloc's debt crisis and cooling Asian economies.

The output data from Germany, France and Italy, which make up at least two-thirds of the eurozone economy, suggests aggregate output figures for the 17-nation bloc may be stronger than expected when they are issued by Eurostat on Wednesday.

Italy's rise was the biggest since the series began in 2000, though statistics institute ISTAT said output data in August, when many factories close for the summer break, was notoriously erratic due to difficulties with seasonal adjustment.

"I think this data should be taken with a pinch of salt," said Barclays Capital analyst Fabio Fois. "It's probably a statistical blip that sometimes happens in August, and is likely to correct to some extent in September."

"But in the near term it will help Q3 GDP. I had a forecast of a 0.1 per cent GDP contraction, and this data puts an upside risk on that," he added.