Eurozone industrial output plummeted by a record 18.4 percent year-on-year in February and inflation halved to an all-time low in March, underlining the depth of recession and adding to pressure for ECB policy easing. Production in the 16 countries using the euro fell 2.3 percent against January, the sixth straight month of decline, while the annual drop was the deepest since records began in 1990, the European Union's statistics office said on Thursday.
Economists polled by Reuters had expected a 2.4 percent monthly fall and a 17.6 percent annual drop. "On balance, these figures validate the view that the industrial recession deepened further in the first quarter," said Marco Valli, economist at Unicredit.
He said the data pointed to a quarterly GDP contraction of 1.7 percent against 1.6 percent in the previous quarter, but others were more pessimistic. "Following a quarterly minus of 6.2 percent in Q4, production is now likely to plunge by 7 percent in Q1," said Rainer Guntermann, economist at Commerzbank. "GDP is therefore unlikely to shrink by much less than 2 percent quarter on quarter, thus paving the way for a 4.5 percent decline in the full year," he said.
The European Commission's monthly sentiment survey for March showed companies were unlikely to feel the need to boost output soon as they perceived their inventory levels as too high. Eurostat also said euro zone inflation in March was 0.4 percent month-on-month, confirming its end-March estimate that prices in the area rose 0.6 percent year-on-year - the lowest rate since records started in 1996. Prices were already falling year-on-year in Ireland, Portugal, Luxembourg and Spain, data showed.
The European Central Bank wants inflation to be below, but close to, 2 percent. Several ECB officials have said the bank would take action to prevent the gauge from falling too far below target, even though they saw no risk of deflation. The ECB has said that for deflation to exist there must not only be a protracted period of negative inflation, but also negative inflation expectations, which would make consumers hold back purchases.
The bank meets on interest rates on May 7 and has hinted it may cut interest rates by 25 basis points to 1.0 percent as well as consider other, unconventional ways of policy easing, which markets expect could take the form of corporate debt purchases or the lengthening of the maturity of refinancing operations.
The March inflation fall was fuelled mainly by lower energy costs as prices fell 1.2 percent month-on-month for an 8.1 percent year-on-year drop. Food, alcohol and tobacco prices fell 0.1 percent on a monthly basis for a 1.9 percent annual gain. Core inflation, which excludes unprocessed food and energy costs and is closely watched by the ECB in policy decisions, was 0.6 percent month-on-month and 1.5 percent year-on-year.