Euro zone March output falls, may spell weaker Q1

The European Union's statistics office Eurostat said industrial production in the 17 countries using the euro fell 0.2 percent in March against February for a 5.3 percent year-on-year rise.

Economists polled by Reuters had expected a 0.3 percent monthly increase and a 6.2 percent annual gain.

Eurostat also revised upwards its February data to a monthly rise of 0.6 from 0.4 percent and an annual rise of 7.7 percent from 7.3 percent.

Economists said that in the January-March period industrial production rose by 1 percent quarter-on-quarter, below the 1.8 percent increase in the last three months of 2010.

"(This) is a bit disappointing — it is a solid if unspectacular rate of growth and it suggests perhaps some downside risks to the estimate for the first quarter GDP estimate due out tomorrow (Friday)," said Ken Wattret, chief euro zone economist at BNP Paribas.

"Our forecast is 0.7 percent growth quarter-on-quarter and on the basis of the production numbers today there could be some downside risk to that," he said.

The monthly fall was driven by shrinking output of capital goods, energy and non-durable consumer goods, data showed on Thursday.

Economists said prospects for industrial output were still fairly bright in the near term, but could deteriorate later.

"Indeed, with richly filled order books and low inventory levels, euro zone industrial output look set to expand further in the current second quarter," said Martin van Vliet, economist at ING bank.

"But the combination of high oil prices, a strong euro and the softening in world trade momentum makes us more cautious about industry's prospects for the second half of this year."