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Weak euro zone Dec output adds to ECB cut pressure

Industrial output in the euro zone was much weaker than expected in December, data showed on Wednesday, adding to evidence the economy is slowing and increasing pressure on the European Central Bank to cut interest rates.

Production in the 13 countries using the euro fell 0.2% month-on-month in December, the second monthly fall in a row, for a year-on-year gain of 1.3%, the European Union statistics office said. Economists had expected a 0.6% monthly rise and a 2.3% annual gain. “Euro zone growth is in trouble and the European Central Bank had better get its skates on for easing soon”, said David Brown, Chief European Economist at Bear Stearns International. “Supply side output is sliding and growth momentum is fading fast. With consumers reining back their optimism we have all the hallmarks here for a nasty slowdown in growth. This should add pressure on the ECB to cut rates sooner rather than later.”

Economic growth in the euro zone is expected to slow to below 2% this year from around 2.6% estimated for 2007 as a result of the global credit crunch, slower growth in the United States, high oil prices and a strong euro. But with euro zone inflation at a record high of 3.2% year-on-year in January, the ECB has signaled it was not ready to cut rates yet, moving only to a neutral policy stance from a tightening bias. “The euro zone manufacturing sector  has clearly lost significant momentum overall in recent months in the face of the very strong euro, elevated oil prices, the credit crunch, higher interest rates and softer growth in key export markets”, said Howard Archer, economist at Global Insight. “This adds to the pressure on the ECB to eventually cut interest rates despite its current concerns over inflation.”

Eurostat revised up slightly its previously released November output data to a monthly decline of 0.4% from 0.5% and an annual rise of 3.1% from 2.7%. Production of capital goods declined the most in December, falling 1% month-on-month and slowing sharply in year-on-year terms to an increase of 2.3% -- less than half the November expansion. Production of durable consumer goods stayed unchanged month-on-month in December after three months of shrinkage, but registered a hefty 4.2% drop in annual terms after a 3.5% decline in November. (Reuters)