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Euro zone Q3 growth hopes thrive on industry output

PARIS - Strong August industrial output in the euro zone’s three biggest economies puts the bloc on track for a growth rebound in the third quarter though global market tensions continue to cast a shadow on the outlook further out.

Factories stepped up production far more than expected in Germany, France, and Italy, which together account for roughly 70 percent of the euro zone economy, according to national data released on Tuesday and Wednesday.

The reports gave economists new reason to believe the euro zone economy would rebound from a disappointing second quarter when quarterly growth slowed sharply to 0.3 percent.

However, they were less confident the momentum would spill over into the fourth quarter given the export-denting strength of the euro and headwinds from the recent international credit crunch that have buffeted business confidence since then.

‘Together with reasuring news from German and Italian industry in July and August, the French performance confirms the euro zone’s resilience to the external headwinds in the third quarter,’ said Gilles Moec at Bank of America in London.

‘This, combined with the coming inflation spike, warrants the European Central Bank’s reluctance to cut interest rates. However we do not expect the fourth quarter to be as bright.’

Busy factories

French industrial output unexpectedly rose 0.3 percent in August compared with the previous month as more consumer goods and automobiles rolled off factory belts, while July’s rise was revised higher, statistics office INSEE said on Wednesday.

Production in Italy also came in stronger than expected, rising by 1.3 percent in August after a sharp revision to the July data which showed production rose 0.3 percent rather than falling 0.4 percent as previously reported, ISTAT said.

The two national reports came a day after data from Germany showed industrial production in Europe’s biggest economy rose far more strongly than expected, by 1.7 percent in August.

Analysts said the data all suggested euro zone growth would bounce back in the third quarter even though the last three months of the year were likely to bring a renewed slowdown.

Susana Garcia of Deutsche Bank in London said business morale was waning across the euro zone and Italy could expect a slowdown in the fourth quarter, but the surprise jump in its August output at least meant things would improve before they got worse.

‘It’s very good news as far as it goes. We were expecting a rebound in gross domestic product for the third quarter, and these kind of numbers support that more than before. It’s not sustainable but it’s very welcome,’ she said.