Factory Output Across Eurozone Fell in May

By Paul Hannon And Brian Blackstone 
        Factory output across the eurozone fell in May and last rose in 
February, an indication that its economic recovery remained weak as Greece and 
its creditors struggled to find ways to keep the heavily indebted country inside 
the currency area. 


        However, there are signs that the European Central Bank's new 
stimulus program is beginning t o reach the wider economy, with the results of a 
survey also published Tuesday showing eurozone banks eased standards for loans 
to companies during the second quarter while demand for business credit rose 
"substantially." 


        The European Union's statistics agency said that production by 
factories, mines and utilities during May was down 0.4% from April, but up 1.6% 
from the same month in 2014. Output was unchanged in April and declined in 
March, so output last rose on the month in February, and remains well below the 
levels recorded before the 2008 financial crisis, underlining the glacial pace 
of the eurozone's recovery from that trauma. 


        ECB policy makers had hoped that a weakening of the euro in response 
to a series of new stimulus measures would boost exports and economic growth. 
Manufacturers are more geared to exports than services providers, but while 
industrial output did increase slightly in the second half of last year, it has 
stalled in 2015. 


        If the boost to exports hasn't proved as strong as hoped, the ECB's 
new quantitative easing program can aid the economy in a variety of other ways, 
for example by restarting bank lending that will help fund long postponed 
investment by businesses and households. 


        According to the ECB's quarterly survey, banks loosened the terms on 
loans to businesses and for home purchases during the second quarter. In both 
cases, competition among banks was the main driver of this trend, the ECB noted. 



        Meanwhile, "net demand for loans to enterprises increased 
substantially, owing mainly to the general level of interest rates," the ECB 
said. "Fixed investment also contributed to an increase in demand. Net demand 
for housing loans continued to increase substantially owing to the low level of 
interest rates and to housing market prospects," it said. 


        The financial crisis exposed fiscal problems peculiar to the eurozone 
that persist seven years later, with governments from the currency area Monday 
agreeing the basis of a third bailout for Greece. 


        The report provided some early evidence that Greece's debt crisis 
hasn't upended the bloc's modest economic upturn. The figures were calculated 
from a survey of 142 banks in the eurozone that was conducted between June 9 and 
June 24, a period when tensions between Greece and its creditors was escalating 
but before they reached a boiling point after Athens called for a referendum on 
the bailout that was held on July 5. Greek voters strongly rejected the bailout 
conditions, but the deal struck on Monday contained many of the austerity 
measures that voters had rebuffed. 


        The lending survey "does show that at least before the Greek 
showdown, bank lending in the eurozone was increasingly supporting the eurozone 
recovery," said ING Bank economist Teunis Brosens in a research note. 


        And in a positive sign for the bloc's recovery, the standards for 
business loans in France and Italy continued to ease last quarter. These two 
economies, the second and third biggest in the eurozone, have struggled to 
expand in recent years leaving Germany as the main driver of economic activity 
in the region. 


        The data from Eurostat showed that industrial production in Greece 
fell by 5.1% between April and May, a sign that doubts about the country's 
eurozone future was hurting economic activity. There was also a 6.9% drop in 
Irish production, although that tends to be highly volatile, and a 5.7% decline 
in Dutch output. In Germany, output was flat, while France, Italy and Spain all 
recorded increases. 


        With relations between Greece and its creditors at a low ebb, it is 
still possible that a collapse in the latest bailout agreement could lead to a 
wider default by Greece on its government debt, and its departure from the 
eurozone, a development that would likely slow, and possibly derail, the 
recovery. 


        Write to Paul Hannon at paul.hannon@wsj.com and Brian Blackstone at 
brian.blackstone@wsj.com 


        (END) Dow Jones Newswires


        July 14, 2015 06:10 ET (10:10 GMT)

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