Eurozone industrial production turned out slightly stronger than expected in October, data showed, but economists said the numbers still pointed to a falling trend and weaker economic growth in the fourth quarter.
Employment growth in the eurozone slowed during the third quarter, the European Union's statistics office said on Wednesday, in a sign labour markets could be losing momentum. Industrial production in the 13 countries using the euro rose 0.4 percent month-on-month for a 3.8 percent annual gain, Eurostat said. Economists polled by Reuters had expected a 0.3 percent monthly rise and a 3.7 percent year-on-year increase.
But Eurostat also revised downwards its previously released data for September to a 0.8 percent monthly fall from 0.7 percent and a 3.3 percent yearly rise from 3.5 percent, which economists said offset the slightly stronger October numbers. "It is quite clear that the trend growth of eurozone industrial production is slowing down," Bear Stearns economist David Brown said.
"Trend growth has slipped back to 3.5 percent from a peak of 4.5 percent last year. Next year could see a repeat performance of 2005 when trend growth was close to zero," he said. Capital goods production rose 1 percent in October against September and was 6.6 percent higher than a year earlier. In the consumer segment, however, production of durable and non-durable goods stayed unchanged on a monthly basis.
Eurostat said 407,000 people found jobs in the eurozone in the third quarter, raising the number of employed to 143.6 million. Employment grew by 0.3 percent quarter-on-quarter after a 0.6 percent rise in the second quarter and 0.7 percent in the first.
"The improvement in eurozone labour markets may be starting to lose momentum in the face of waning business confidence and increased concerns about the outlook," said Howard Archer, economist at Global Insight. Employment growth boosts consumer demand, which economists expect to be the main driver of growth in the eurozone this year and next. But it can create inflationary pressure if it translates into wage demands that exceed productivity gains.
The European Central Bank, which wants to keep inflation just below 2 percent, has warned of rising inflationary pressure from increasing oil and food prices, and cautioned these should not trigger demands for compensation through higher wages.
The bank left interest rates unchanged last week and economists expect it will not raise them further from the current 4.0 percent because of the expected slowdown in growth, even though they expect the bank to maintain a tightening bias. "Relatively resilient eurozone industrial production in October and ongoing employment growth in the third quarter is likely to cause the ECB to maintain its generally hawkish rhetoric," Archer said.
"Nevertheless, we suspect that concerns about faltering eurozone growth, a very strong euro and ongoing major uncertainties over credit markets will result in the ECB holding interest rates at 4.00 percent well into 2008 despite its worries over inflation," he said.