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Euro Zone Factory Output Creeps Higher

Euro zone factory output growth crept up in November from October's 26-month low, but is
unlikely to regain its summer momentum soon, pointing to interest rates remaining on hold, a key survey showed on Monday.

The final RBS/NTC Eurozone Manufacturing Purchasing Managers Index (PMI) rose to 52.8 from the 52.6 flash estimate, above the 52.6 consensus forecast and well above October's 51.5.

However, the risks to export growth -- due partly to the euro's (EUR-) record highs against the dollar -- and worries the credit crunch will hit both foreign and domestic demand are likely to raise doubts about the strength of the recovery.

"The recovery in manufacturing was surprising, and the breakdown looks good too," said Marco Valli at Unicredit MIB.

"But this looks very much as a technical rebound, and shouldn't mark the beginning of a renewed acceleration," he added, warning that weaker growth lies ahead.

Financial markets showed little reaction to the data.

Despite the slowdown in growth, the ECB is very unlikely to gallop to the rescue by cutting interest rates from their current 4.0 percent as oil prices near $100 a barrel and inflation remains a threat.

Data released on Friday showed euro zone inflation soared in November to a six and a half year-high of 3.0 percent, above the 2.9 percent forecast in a Reuters poll, and well above the ECB's 2 percent ceiling, dispelling any expectations of an imminent rate cut.

And German inflation has accelerated to a near 14-year high of 3.0 percent on the back of the recent surge in oil and food prices.

In Germany, the euro zone's largest economy, the factory PMI rose two points to 53.7 in November while France's rose 2 points to 52.5. Italy's index remained flat at 51.3 while Spain's rose to 50.7 from 49.6 in October.

Despite the euro rallying to within spitting distance of $1.50, new export orders growth in the 13 countries using the currency recovered to 52.5, slightly above the 52.3 flash figure.

The backlogs index was at the 50.0 mark that divides growth from contraction while the output prices index rose four tenths of a point to 53.6 -- indicating manufacturers have been able to
pass on some of their costs at the factory gate.

The input prices index rose to 61.7 from 59.0 in October but was down slightly from the flash figure of 61.8.

Contact Europe: Economy

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