Eurozone Factory Output Jumps, Lending Comfort to ECB

Eurozone factory, mining and utility output surged in August, in a sign that the currency area’s economy is still growing robustly as the European Central Bank prepares to make a pivotal decision about the future of its bond-buying program.

Industrial output increased by 1.4% in August from July, and was up 3.8% from a year earlier, the European Union’s statistics agency said Thursday. That was much stronger than expected, as economists surveyed by The Wall Street Journal last week estimated a month-to-month rise of just 0.5%.

The jump followed what had appeared to be two straight months of weakness that raised questions about the strength of the recovery after a strong first half of 2017. However, Eurostat now estimates that output rose by 0.3% in July, having previously seen a 0.1% rise.

The industrial production figures bring official data closer into line with surveys of businesses and households. The evidence now more consistently points to economic growth in the third quarter roughly matching the strong pace of the second.

The acceleration in output is a sign that the euro’s gains against the U.S. dollar and other currencies since the start of 2017 have yet to weaken the recovery by crimping exports.

The surge was driven by Germany, which saw output rise by 3% from July, the largest increase in more than six years. But long-troubled Greece matched that increase, although French output declined.

The strength of the eurozone economy in 2017 has surprised most economists, including those at the ECB, who began the year forecasting growth of 1.7% and now expect to see an expansion of 2.2%.

The jump in industrial production is likely to reassure ECB policy makers that their growth forecast will prove correct. The central bank’s 25-member governing council is due to meet Oct. 26, at which gathering it has signaled it is likely to announce a reduction in its bond purchases from January.

However, the good news on growth hasn’t been matched by clear signs of a pickup in the annual rate of inflation to first meet and then stay at the ECB’s target of just below 2%.

In a speech Wednesday, the ECB’s chief economist warned that policy makers had made “insufficient progress” toward their inflation target, injecting a note of caution as the central bank prepares to scale down its asset-buying program. Peter Praet repeated a suggestion, first aired last week, that the program might be extended for a protracted period at a much-reduced pace.
Source: Dow Jones

Source.