Euro zone industrial production fell 1.6% M/M in September, while the consensus was looking for a decline of 1.8% M/M. The August reading was downwardly revised from 1.1% M/M to 0.8% M/M. On a yearly basis, industrial production plunged 2.4% Y/Y from -0.7% Y/Y in August. Looking at the details, intermediate (-2.6% M/M from 1.4% M/M), capital (-1.8% M/M from 1.4% M/M) and durable consumer goods (-2.5% M/M from 1.2% M/M) declined sharply. Industrial production dropped the most since February 2002 which confirms that the euro zone economy is entering a recession.

In Germany, Europe’s largest economy, GDP contracted by 0.5% Q/Q in the third quarter while the consensus was seeking for an outcome of -0.2% Q/Q. Second quarter GDP was upwardly revised from -0.5% Q/Q to -0.4% Q/Q. This is the second consecutive quarter of negative growth and confirms that the German economy has entered a recession.


Other: BoE opens the door for further rate cuts

In the UK, the jobless claims rose 36.5K in October while the consensus was looking for an increase of 40K. The previous figure was upwardly revised from 31.8K to 36.3K. Although the figure came out better than expected, these are the strongest increases since the previous recession in the early 1990s. Average earnings including bonus slowed from 3.4% Y/Y to 3.3% Y/Y in September.

The Bank of England’s November Inflation Report revealed why rates were cut by 150 basis points last week. Domestic demand slowed markedly with both household spending and investment showing a significant deterioration, but also the world economy worsened substantially. According to the BoE, GDP growth will start to recover in the second half of 2009 and inflation is expected to fall sharply in the near term. Further out, inflation will fall well below the target of 2%. The committee concluded that the tightening in the supply of money and credit is likely to cause output to contract further and the risk of inflation materially undershooting the inflation target has increased substantially. The Inflation Report clearly opened the door for further and aggressive rate cuts.