Ireland drives huge boost in Eurozone factory output in January

Industrial production rose by 2.1 per cent from December across the 19-member region, reversing negative readings in both of the previous two months. It was the best monthly expansion since September 2009 and the fifth strongest since 1991. Eurostat also revised the December figures from a contraction of 1 per cent to one of just 0.5 per cent.

The improved picture came days after the European Central Bank launched its latest stimulus programme to raise growth and stave off deflation. It cut interest rates for banks deeper into negative territory, increased its quantitative easing programme from €60 billion to €80 billion a month and launched a cheap funding scheme for lenders. “Anyone that has been following the news regarding the ECB decision to expand QE recently, must have gotten the idea that the eurozone economy is in terrible shape,” Bert Colijn, an economist at ING Financial Markets, said. “While inflation is far from the ECB target, the performance of the eurozone economy has not been all that bad.”

The performance was driven by Ireland, which enjoyed a 12.7 per cent increase in production in January compared with December. The country has bounced back remarkably since its bail-out in 2010, growing by 7.8 per cent last year, according to official Irish data. Factory output was boosted by a sharp rise in capital goods, such as equipment and machinery, seen as an indicator of future investments. “Again, this was the largest increase since September 2009,” Dominic Bryant, a market economist at BNP Paribas, said.

He claimed that the strong figures showed there was a chance the eurozone could grow more rapidly in the first three months of the year than the 0.3 per cent forecast. He warned, however, of a downside risk, suggesting that the likely unwinding of January’s strength suggested a negative carryover effect for second-quarter growth. The ECB last week cut its forecasts of full-year growth for this year and next.

Howard Archer, chief European and UK economist at IHS Global Insight, also sounded a warning. “Output can be highly volatile,” he said. “Consequently, there is a very real possibility that February will see a marked relapse.”