Record drop in Euro zone industrial output
Steepest annual fall in industrial production in countries using the euro drives up expectations that the ECB will cut rates.
BRUSSELS (Reuters) -- Euro zone industrial production plunged by a record amount year-on-year in November, signaling a deepening recession and strengthening market views that the ECB will cut interest rates by half a percentage point on Thursday.
Industrial output in the 15 countries using the euro in November fell 1.6% on the month and 7.7% year-on-year - the steepest annual drop since records started in 1990, the European Union statistics office said on Wednesday.
Economists polled by Reuters had expected a 1.8% monthly fall and a 6.0% year-on-year decline.
Economists said the fall was in line with a quarterly contraction in euro zone gross domestic product of around 1% in the fourth quarter of last year and expect the economy to shrink by about 2% in 2009.
"The further very sharp fall in industrial production in November exerts late additional pressure on the European Central Bank to deliver a significant interest rate cut on Thursday. We expect a 50 basis point cut from 2.50% to 2.00%," said Howard Archer, economist at IHS Global Insight.
Eurostat also revised downwards its October output data to a 1.6% monthly contraction from the previous 1.2% drop and a 5.7% year-on-year fall from 5.3%.
The data showed industrial production was pulled down by plunging output of consumer durables and intermediate goods.
"The report emphasizes that the ECB's projections for the euro zone are too optimistic and adds to the pressure for it to cut rates tomorrow despite its earlier preference for a pause," said Nick Kounis, economist at Fortis.
The ECB, which has cut rates by a total of 175 basis points to 2.5% since October in three successive moves, has left its options open for January. ECB President Jean-Claude Trichet has suggested the bank could wait to see the effects of the past rate cuts before embarking on new ones.
But pressure on the bank to cut again this month grew after an estimate showed last week that euro zone inflation in December fell to 1.6% year-on-year, well below the bank's target, and economic sentiment hit record lows.
The output data is in line with a steep drop in investment that helped drag the euro zone into its first-ever recession in the second and third quarters of 2008 and falling consumer confidence as concerns about jobs rise among households.
"This weakness (of production) is going to impact on employment in the industrial sector in a major way; it is merely a matter of time," said Ken Wattret, economist at BNP Paribas.
"The ECB cannot prevent the collapse in activity under way but it can certainly do more to try and generate conditions more favorable to a recovery in late 2009 and 2010," he said. 
