2nd UPDATE: Euro-Zone Jan Indus Output -3.5%MM, -17.3%YY

2nd UPDATE: Euro-Zone Jan Indus Output -3.5%MM, -17.3%YY

(Adds further detail, economist comment)

    By Joe Parkinson    Of DOW JONES NEWSWIRES  

LONDON (Dow Jones)--Industrial production in the 16 countries that use the euro plunged in January by its largest level since records began, as output declined sharply across the board.

According to figures released Friday by the European Union's statistics agency, Eurostat, industrial production fell by 3.5% from December, and by 17.3% from January 2008, with both the monthly and annual declines the largest since records began in January 1990.

The news chimes with separate data Friday showing U.K. February vehicle production fell 61% from the same month a year earlier, a continuation of the country's steep decline in automotive output.

The drop in production output across Europe ties in with the further collapse in global trade at the beginning of this year

Economists said the decline in euro-zone output confirmed that the currency bloc's recession was deepening and signaled a heavy gross domestic product contraction in the first quarter.

"January's appalling euro-zone industrial production figures suggest that the economy continued to contract very sharply in the first quarter," said Capital Economics in a research note.

"In all then, it appears that the euro-zone recession may have deepened in the first quarter," it said.

Deepening recession across the euro-zone increases the likelihood that European Central Bank policymakers' will accompany steep reductions in interest rates with steps to inject more cash into the economy via purchases of commercial and government securities, a process known as quantitative easing.

The ECB has slashed its key interest rate to a record low of 1.5% from 4.25% in October and economic data continues to indicate there is room for further cuts.

A breakdown of January's data confirmed that the decline in industrial output was spread across all sectors, with the production of capital goods and intermediate goods such as raw materials falling sharply for the fifth straight month. Production of capital goods fell by 6.0% on the month in January and by 21.4% on the year, again the monthly and annual numbers were record lows.

Production of durable consumer goods was also weak, declining 2.6% on the month in January and by 18.0% on the year.

Declines in industrial output were also significant in all of the euro zone's leading economies, with production in Germany slumping 7.5% from December and by 3.5% on the month in France.

Economists warned that broad-based weakness across the euro-zone manufacturing sector indicates that a recovery is some way away.

"It seems inevitable that euro-zone manufacturers will continue to find life extremely difficult over the coming months as they are hit by deep slowdowns in both domestic demand and in key export markets, as well as intensifying competition," said Howard Archer, an economist at IHS Global Insight.

Eurostat Web site: www.europa.eu.int/en/comm/eurostat

-By Joe Parkinson, Dow Jones Newswires; 44 20 7842 9452; [email protected]

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(END) Dow Jones Newswires

March 20, 2009 07:08 ET (11:08 GMT)

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