Eurozone industry suffered a setback in November, according to national data on Thursday that showed French and Spanish production mirrored a decline already seen in German industrial output.
French production of industrial goods fell 1.5 percent in November from the previous month, its biggest drop since July 2006 and three times the decline expected by economists, as transport strikes exacerbated a wider eurozone trend.
That trend was evident in Spain, where output fell 0.6 percent from a year earlier, the biggest decline in 32 months, and in Germany, Europe's biggest economy, which on Wednesday reported an unexpected drop of 0.9 percent in its production.
Such weak industrial output data adds to the headache for the European Central Bank, which decides monetary policy on Thursday and is also confronted with a spike in inflation.
"There is an accumulation of signs of a slowdown in the euro area which the ECB must take into account even if there are signs of inflation," said Olivier Gasnier, economist at Societe Generale in Paris. Gasnier expects the ECB to leave its key interest rate unchanged at 4.0 percent on Thursday, as did all the 71 economists polled by Reuters.
A more complete snapshot of how euro zone industry fared in November will come on January 14, when Italy will issue its production data and the European Union statistics office is scheduled to publish aggregate figures for the euro zone.
French automobile production tumbled 5.3 percent on a monthly basis, while energy and agri-food output fell 2.0 percent each. The only sector to be spared was capital goods, where production rose 0.3 percent.
"There's been a heavier toll on the November figures due to the transport strikes that took place," said Tullia Bucco, economist at Unicredit MIB in Milan. "The stronger drag on French industrial production due to the repeated strikes was hinted at in yesterday's German industrial production figures."
Economists said the French data indicated that economic activity slowed in the eurozone's second biggest economy in the fourth quarter and confirmed that full-year growth would undershoot the government's 2007 target of 2.0-2.5 percent.
They also expect slowing US growth, the euro's strength, record high oil prices, and the continued fallout from financial market turmoil to slow growth around the eurozone, and not just France.
"Broadly what we've seen in the euro area is a reaction to the spike in uncertainty in financial markets, because the European economy tends to be quite inflexible," said Dario Perkins, economist at ABN Amro in London. "This uncertainty is encouraging companies and households to postpone spending, so certainly short term, this weakness will probably continue."
Three of the eurozone's leading economic research institutes on Wednesday said they expected the eurozone to grow by 0.5 percent in the fourth quarter of 2007 and 0.4 percent in the first quarter of 2008. That would mark a slowdown from the 0.8 percent rate of quarterly growth posted by the eurozone economy in the third quarter of 2007. The French economy grew at the same pace.
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