Europe Industrial Output Drops 18.4%, Most on Record

By Jurjen van de Pol

April 16 (Bloomberg) -- Industrial production in Europe contracted by the most on record in February as the deepening global recession curtailed demand for manufactured goods around the world.

Output in the euro region fell 18.4 percent from the year- earlier month, the biggest drop since the data series began in 1986, after a revised 16 percent decline in January, the European Union’s statistics office in Luxembourg said today. Economists expected production to fall 18 percent in February, according to the median of 16 estimates in a Bloomberg survey. Inflation slowed in March to 0.6 percent, a record low, the office said in a separate report.

Factories across the 16-nation euro zone are cutting output and firing workers as companies cope with the worst global slump in 60 years. China’s economy, the world’s third-largest, grew at the slowest pace in almost a decade in the first quarter, the government said today. The Organization for Economic Cooperation and Development said last week that its data indicate the world economy is in a “deep slowdown.”

“Demand for euro-zone exports is falling through the floor,” said Dominic Bryant, an economist at BNP Paribas in London. “We expect the European Central Bank to cut rates to 1 percent and that will be their floor in the near term as they are going to announce other measures” to spur lending and revive growth.

This Year

The European economy may shrink as much as 4.1 percent this year, the OECD forecast on March 31. All 30 economies in the OECD, which doesn’t include China, will be in a recession by year end, the Paris-based organization said.

The euro extended declines against the dollar after the data’s release. The single currency fell to $1.3156 at 10:25 a.m. in London, down 0.5 percent on the day.

ASML Holding NV, Europe’s largest maker of semiconductor equipment, yesterday reported a first-quarter loss as sales plunged 80 percent. In December, the Veldhoven, Netherlands- based company said it would cut about 1,000 jobs and temporarily shut production facilities in the first and second quarters.

Rohwedder AG, a Bermatingen, Germany-based maker of robots and testing equipment, said on April 14 that its full-year loss widened because of the “the enormous repercussions of the global economic crisis” on investments in the automotive and telecommunications industries.

Unconventional Measures

Falling industrial output adds to pressure on the ECB to use more unconventional measures to revive the credit markets and boost the economy as it runs out of room to reduce interest rates. The Frankfurt-based central bank has cut the benchmark rate to a record low of 1.25 percent and ECB President Jean- Claude Trichet signaled another quarter-percentage-point cut is likely next month.

ECB council member Axel Weber said yesterday he is against lowering the key rate below 1 percent and would prefer not to buy corporate debt, suggesting policy makers are split over how to haul Europe out of the recession. Council members George Provopoulos from Greece and Athanasios Orphanides of Cyprus have both indicated they may support cutting the benchmark below 1 percent and purchasing debt securities.

Orphanides said in an April 11 interview that the ECB may have to continue easing monetary policy beyond next month because “the risk of deflation had increased somewhat in the past few months.”

‘Stark Reminder’

Today’s report confirmed that inflation in March slowed to 0.6 percent, the lowest rate since the euro-area data were first compiled in 1996. The ECB, which aims to keep the inflation rate just below 2 percent, last month predicted annual price gains would average 0.4 percent this year and 1 percent in 2010.

The data “are a stark reminder that the downward trend in euro-zone inflation is firmly established,” said Martin van Vliet, an economist at ING Groep NV in Amsterdam. “Further unconventional policy easing by the ECB is needed to counter the threat of a prolonged period of below-target inflation.”

To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net