Unexpectedly weak industrial output in Germany, France and Italy in August has raised fresh doubts about the strength of the euro zone's recovery and may make the European Central Bank still more cautious about hiking interest rates.
Italian output figures released today showed a 0.8 per cent monthly drop in August and came after a 1.9 per cent dive reported by France yesterday and a 1.0 per cent fall by Germany last Friday.
The Italian figures followed a fall in an index of German investor morale published by the ZEW institute yesterday to its lowest level in 16 months in October.
Output levels in August, when many factories are closed, can be particularly volatile and hard to interpret, but the data still points to an underlying weakening of the economy.
"The August data looks very bad and it can't be brushed off as just monthly volatility. This will add to the ECB's caution," said Bank of America economist Mr Lorenzo Codogno.
"There will probably be something of a pick-up in September but we are still looking at a weakening of the recovery as the surge in oil prices is making itself felt."
US crude oil prices reached new highs above 54 dollars per barrel this week.
The ECB has held its key interest rate steady at 2 per cent for 16 months and the bank is expected to maintain that level well into next year as growth prospects remain slight.
Codogno is one of a growing number of analysts who expect growth to slow down in the second half of this year as recent data have not been encouraging.
He expects the ECB to keep rates on hold until July next year. "We seemed out on a limb with that forecast until a few weeks ago, but not so much now," he said.