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Eurozone industrial output in surprise slump

LONDON (AP) -- Industrial production across the 17 European Union countries that use the euro unexpectedly slumped in October, official figures showed Wednesday, in another sign that the region's recession is getting worse and weighing on big economies like Germany.

Eurostat, the EU's statistics office, said industrial production fell by a monthly 1.4 percent, in contrast to expectations of a modest 0.2 percent increase. The fall also follows a 2.3 percent drop in September and provides further evidence that the eurozone economy is struggling despite the current calm in the financial markets.

Germany, Europe's biggest economy, fared particularly badly in October, with its industrial sector posting a 2.4 percent monthly decline in output. Germany has actually seen its industrial sector, made of heavyweights such as car companies Daimler AG and Volkswagen AG, shrink for three straight months.

“If any further evidence were needed that the economic weakness is no longer confined to the periphery, German industrial production has dropped by 3.8 percent in the last year, a bigger fall than that seen in both Spain and Greece,” said Jonathan Loynes, chief European economist at Capital Economics.

The eurozone fell back into a mild recession in the third quarter _ officially defined as two straight quarters of negative growth _ after its economy contracted by a quarterly rate of 0.1 percent.

Coming in the wake of a bigger-than-expected 1.2 percent drop in retail sales in October, Wednesday's figures have reinforced expectations that the eurozone recession has deepened heading into the final quarter of the year. Industrial output is a core part of the eurozone economy, not least in Germany which has prospered over the past few years through the export of its high-value products, such as cars and machinery.

James Ashley, senior European economist at RBC Capital Markets, said the figures are “certainly consistent with the general message from the `soft' survey readings which suggest that the risks to our euro area Q4 GDP forecast of -0.2 percent are skewed to the downside.”

Analysts said the latest bleak economic figures are unlikely to prompt the European Central Bank cutting interest rates any time soon, a move that could potentially breathe some life into the economy by making it cheaper for businesses and households to lend.

Last week, the ECB's president Mario Draghi indicated that there was a discussion to reduce the benchmark rate from the record low 0.75 percent but gave no real steer to markets to anticipate lower borrowing costs.

“For now, we continue to think that the ECB will leave policy rates on hold in 2013; these figures though, quite clearly, highlight the risk that we have long emphasized of a possible final cut,” said RBC's Ashley.

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