May preliminary: +0.6% m/m, -2.8% y/y

MNI survey median: flat m/m, -2.8% y/y
MNI survey range: -3.8% to +0.5% m/m

April revision: -1.1% m/m (-0.8%)
March unrevised: -0.1% m/m
February unrevised: +0.7% m/m
January unrevised: -0.2% m/m
December unrevised: -0.8% m/m
—

PARIS (MNI) – Eurozone industry output surprised on the upside in
May, as a setback for energy was more than offset by a recovery for
manufactured goods, Eurostat said Thursday. Most analysts had expected a
flat reading at best.

Taking into account the downward revision for April, the 0.6%
monthly upturn still left output some 10% below pre-crisis peaks in 2008
and two-month results 0.6% below the 1Q average, which fell 0.4% on the
quarter.

After sharp weather-related swings in recent months, energy output
fell back 2.3% in May, retracing half the rebound in April to stand 1.6%
lower on the year.

Capital goods output recovered by 0.9% on the month after a 3.0%
downturn in April. Intermediate goods were up 0.3% after -1.2%. Consumer
durables regained 0.5% after -0.9%, while non-durables were up 1.7%,
nearly retracing the drop in April. Annual declines were largest for
consumer durables (-6.4%) and intermediate goods (-3.9%) and smallest
for capital goods (-1.9%).

Leading indicators for industry have deteriorated markedly in
recent months. Producers polled by the European Commission say
inventories are rising and order books being depleted fast even as
production slumps. Sector sentiment sunk to a 29-month low in June and
output expectations are well below long-term averages, even in Germany.

The June factory PMI remained deep in recession territory (45.1),
and plunging new orders (43.5) point to weaker output ahead.

Severe austerity policies, tougher borrowing conditions and the
retrenchment in public investment should continue to weigh on domestic
demand in the months ahead.

The French and Italian statistics institutes Insee and Istat and
the German think tank Ifo expect a 1.0% drop in Eurozone industry output
in 2Q and further declines of 0.7% in 3Q and 0.5% in 4Q.

German output surprised on the upside in May with a 1.5% recovery
despite a drop in energy to stand 0.2% lower on the year. Producers
polled by Ifo last month reported a stabilization in current conditions
after an abrupt deterioration in May but were much less optimistic about
medium-term prospects. Citing growing demand for intermediate goods, the
Bundesbank argued last month against an extended manufacturing slump,
but warned that eroding confidence is weighing on investment.

French output fell back 2.1% on the month to stand 3.8% lower on
the year, as a drop in energy accentuated declines in all manufacturing
branches. Insee’s surveys show producers are quite pessimistic about
orders and near-term output prospects. The factory PMI still signals
contraction, up just a half point in June (45.2) from a three-year low
in May, with new orders even weaker (43.0).

After four months of decline, Spanish production regained 0.9% in
May but was still 6.1% lower on the year. The PMI polls have been diving
ever deeper into contraction territory since the start of the year to
reach a three-year low (41.1) in June. Production expectations
deteriorated sharply in June, more than reversing the recovery since
March, according to the Commission’s survey.

In Italy, output recovered 0.8% on the month with a boost from the
energy sector but was still 6.9% lower on the year. While industry
orders have been on an uneven downward trend over the past year, Istat’s
survey signaled a marked recovery in manufacturers’ assessment of orders
in June and in their outlook for near-term production. The factory PMI
has also recovered from a trough in April, but the ongoing slide in
orders in June (41.9) does not point to a sustained upturn.

The smaller reporting countries generally fared better in May with
the exception of Malta (-1.3%), the Netherlands (-1.6%) and Slovenia
(-3.2%). Monthly gains were led by Portugal (+4.1%), Ireland (+1.4%) and
Estonia (+1.1%). Compared to previous-year levels, output in May was
lower everywhere except Ireland (+4.4%), and fell especially in Portugal
(-6.7%), Slovenia (-3.7%), and Finland and Greece (both -2.8%).

–Paris newsroom +331 4271 5540; e-mail: ssandelius@marketnews.com

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