Europe Set to Rally

European industrial output rose the most in two decades in January as the reviving global economy prompted companies to boost production of goods including steel and machinery parts.

Output in the economy of the 16 nations using the euro jumped 1.7 per cent from December, the biggest increase since the euro-area data were first compiled in 1990, the European Union’s statistics office in Luxembourg said today. The January increase was more than double the 0.7 per cent gain projected by economists, according to the median of 34 forecasts in a Bloomberg survey. From a year earlier, output rose 1.4 per cent, the first annual increase since April 2008.

The euro region’s recovery is gaining strength after growth came to a near-halt in the fourth quarter. European manufacturing expanded in February and investors grew more confident this month. Still, Rupert Stadler, chief executive officer of Volkswagen AG’s Audi luxury division, said on March 9 that he “cannot yet sound the all-clear for 2010.”

“The first quarter looks like being a strong one for the manufacturing sector,” said Ken Wattret, chief euro-area economist at BNP Paribas in London. “The external demand- driven, more manufacturing-sensitive data have been doing comparatively well, while the consumer-sensitive data have been very disappointing. This is unlikely to change any time soon given weakness in the labor market.”

Rising unemployment

European companies are relying on faster-growing economies to bolster sales as rising unemployment hurts consumer spending across the region. China’s imports climbed a record 85.5 per cent in January from a year earlier, while exports rose 21 per cent. In India, imports surged 35.5 per cent in January from a year earlier.

The euro’s 6.3 per cent slide against the dollar over the past three months is supporting European exports by making them more competitive just as the global economy gathers momentum. Hanover, Germany-based Continental AG, Europe’s biggest auto- parts maker, last month forecast rising full-year earnings.

The jump in January output was led by energy production, which increased 2.6 per cent from the prior month, today’s report showed. Production of intermediate goods, such as steel and machinery parts, rose 1.4 per cent in the month, while output of capital goods, such as factory machinery, fell 0.3 per cent.

Euro-area economy

The December production data were revised to show an increase of 0.6 per cent in overall output, compared with a 1.7 per cent drop estimated earlier.

The European Commission said last month that the euro-area economy will probably expand 0.2 per cent in the first quarter after growing 0.1 per cent in the previous three months. For the full year, the economy may expand 0.7 per cent after shrinking 4.1 per cent in 2009, the Brussels-based commission forecast.

The European Central Bank last week kept its main lending rate at a record low of 1 per cent with President Jean-Claude Trichet saying that “low capacity utilization” will probably “dampen investment” while rising unemployment may hurt consumer spending this year. ECB council member Yves Mersch said yesterday that a recovery will likely remain “erratic.”

“The worst appears to be over,” Audi’s Stadler said on March 9. Still, the “crisis will keep us busy much longer than commonly thought. What matters now is to remain vigilant, monitor developments very closely and react adequately to possible disturbances.”

THE HOT LIST

German Stocks Hot List Bolser, Mingo Bay