Eurozone factory output down in May

Eurozone factory output down in May
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Eurozone factory output fell in May for the first time in four months.

Industrial production in the 17 countries using the single currency was down 0.3 percent from a month earlier.

That suggests a fragile and uneven recovery in the region.

Production in the two biggest economies, Germany and France, dropped in May, while Italy and Spain showed small increases. Germany, France, and Italy account for two-thirds of the euro zone’s industrial output.

The European Central Bank abandoned its traditional policy of never pre-committing on future interest rates in July and said it would keep rates at current or lower levels for an “extended period” to help the economy.

ECB Executive Board member Benoit Coeure has warned there is a risk that the euro zone recovery might be delayed a few quarters and, in a worst-case scenario, the common currency area might face a Japanese-style lost decade.

And European Central Bank Vice-President Vitor Constancio said the eurozone is likely to see an extended period of slow economic growth.

“Advanced economies, Europe in particular, face a long period of slow growth that will test the quality of our institutions,” Constancio told the Official Monetary and Financial Institutions Forum event in Singapore, according to the text of his speech.

“The euro area is still facing a painful crisis of imbalances, financial fragmentation and low growth,” he continued.

Constancio said the ECB’s step in providing forward guidance about interest rates last week – abandoning its customary insistence that it never precommits on policy – had been successful in stabilising financial markets after the US Federal Reserve indicated it would slow its stimulus asset purchases.

He said the ECB would not exit from crisis measures yet.

“Europe is behind the U.S. in economic recovery and inflation risks, which implies that monetary policy has to stay accommodative for a longer period of time,” he said, adding that forward guidance was conditional on economic data.

Constancio said that while euro zone banks still faced headwinds, they were in better shape than commonly acknowledged, and their situation would improve with the planned banking union.

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