German output fall signals bumpy recovery in eurozone

(FRANKFURT) - Industrial production in powerhouse Germany fell more than expected in July, data showed on Friday, indicating that any recovery in the eurozone was more unpredictable than hoped.

Industrial output in Germany, the eurozone's biggest economy, contracted by 1.7 percent in July after expanding by 2.0 percent in June, Germany's economy ministry said.

Analysts had been projecting a smaller decline of 0.5 percent for July.

Financial markets have rallied in recent weeks, and borrowing rates in safe-bet eurozone nations have risen, as bullish investors foresee a clear turnaround in the single currency economy.

But eurozone data, not just in Germany, is making this bet perhaps too optimistic, a view advanced on Thursday by European Central Bank Chief Mario Draghi who said talk of recovery was premature.

Most fresh data on Friday seemed to confirm this cautious view.

Spain's factories axed output in July, official statistics showed, capping a near two-year industrial decline as domestic demand evaporated in a job-wrecking recession.

And data in France showed that the trade deficit there had widened in July, even after the economy as a whole, the eurozone's second biggest, edged out of recession in the second quarter.

"Data for July revealing falls in German and Spanish industrial production and a deterioration of Germany and France's trade balances support our view that the eurozone's economic recovery will be very slow," said Jennifer McKeown, Senior European Economist at Capital Economics.

Problems remained deep meanwhile in Cyprus which on Friday posted the largest contraction of the crisis-hit economy since the mid-1970s.

In the second quarter, Cyprus contracted 5.9 percent from a year earlier, according to an official estimate.

That was worse than the 5.4-percent flash estimate issued last month.

"While it is too early to draw any firm conclusions from these volatile monthly data, they all suggest that the eurozone economy did not make a storming start to Q3," McKeown said.

On the positive side, tourists visiting crisis-hotspot Greece have given a big unexpected boost to the recession-hit Greek economy, official data showed.

Revised data for gross domestic product in the second quarter of the year showed that the economy shrank by 3.8 percent on a 12-month comparison, far better than the initial estimate of 4.6 percent.

Meanwhile however, and on a strongly positive note, the European Union generated a big quarterly increase in the surplus of its payments current account, official data showed.

This is a particularly critical factor, given that EU countries and particularly those hardest hit by debt problems, are working to ensure that their industries are competitive and to achieve a strong export performance.

The 27-member European Union, the second-biggest economic entity in the world after the United States, achieved a surplus of 35.9 billion euros ($47.0 billion) in the second quarter of the year.

That was about six times greater than the surplus of 5.9 billion euros 12 months earlier, the data from the EU's Eurostat data agency showed.

The current balance of payments is an important indicator of the long-term ability of an economy to pay its way in the world, and has an important bearing on currency values.