Euro zone PPI, orders fall, show recovery fragile

BRUSSELS (Reuters) - Euro zone industrial new orders were weaker than expected in October and producer prices grew less than anticipated in November, data showed, underlining the fragility of economic recovery and weak inflationary pressures.

Industrial new orders in the 16 countries using the euro fell 2.2 percent in October against September, the European Union statistics office Eurostat said on Wednesday.

Orders were dragged lower mainly by a slump in volatile demand for ships, planes and trains, without which the monthly decline was only 0.4 percent.

October new orders, which will translate into industrial production over the following months, were 14.5 percent lower than a year earlier, although that was only half the annual decline in May.

Economists polled by Reuters had on average expected a 1.1 percent monthly fall.

“October’s sharp relapse in industrial orders is a reminder that the euro zone still faces a difficult economic environment and sustainable recovery certainly cannot be taken for granted,” said Howard Archer, economist at IHS Global Insight.

“Meanwhile, ongoing muted producer prices in November reinforces belief that underlying inflationary pressures are still very low in the euro zone,” he said.

Euro zone producer prices rose 0.1 percent against October but were still 4.4 percent down year-on-year, Eurostat said.

Economists polled by Reuters had on average expected a 0.2 percent monthly rise and a 4.5 percent year-on-year fall.

The monthly rise was fuelled mainly by energy prices which rose 0.8 percent on the month. Without them and construction costs, producer prices fell 0.1 percent on the month and were 3.1 percent down year-on-year.

“This indicates that producers’ pricing power remains weak amid substantial excess capacity and intense competition, even though euro zone manufacturing activity has firmed overall in recent months,” Archer said.

“While the marked rise in oil prices from their early-2009 lows and unfavourable base effects will exert upward pressure on producer prices over the next few months, this is likely to be countered to a large extent by ongoing muted core price pressures resulting from substantial spare capacity and still relatively muted demand,” Archer said.

Reporting by Jan Strupczewski, editing by Timothy Heritage