Milan - Eurozone industrial output jumped twice as much as expected in July, breaking a two month trend of contraction and raising hopes that the single currency area may start growing again in the third quarter after stalling in the previous three months.
Industrial production in the 18 countries sharing the euro jumped by 1.0% month-on-month in July, and was 2.2% higher on the year, well above expectations of economists polled by Reuters.
The annual expansion showed the strongest rise since November last year when production increased 2.7%, European Union's statistics office Eurostat said.
"However, all is not well for the industrial sector," said Martin van Vliet, senior eurozone economist at ING.
"Production remains more than 10% below its pre-crisis peak and the recent weakening in the industrial surveys shows that manufacturers are finding life more challenging, which is not surprising given the tensions and sanctions between Russia and the West over the crisis in Ukraine and the slowdown in demand from some EM economies," he added.
Eurostat said the monthly rise was driven mainly by the production of capital goods which rose 2.6% in July, followed by 1.2% growth in the production of non-durable consumer goods.
Europe's growth engine Germany saw industrial production expanding at its fastest pace in eight months, up 1.9% month-on-month, matching a rise seen in November last year.
Italy was the only major eurozone country that saw its output fall as production contracted 1.0% on the month.
The eurozone's second largest economy France reported a deceleration in industrial output growth to 0.2% on the month from a 1.3% rise in June.
Analysts said the Italian data was worrying because it could signal that the country would remain in recession in the third quarter as well.
"It's disappointing and judging from the sentiment indicators we have had for August it means in all likelihood industrial output will fall in the third quarter, which means GDP risks contracting again as well," said Riccardo Barbieri, chief European economist at Mizuho.
Both Rome and Paris struggle to fix their public finances. France said on Wednesday it would not honour commitments to bring its budget deficit below the European Union ceiling of 3% of GDP next year as promised.
In a separate data release, Eurostat said that employment in the eurozone rose 0.2% on the quarter in the three months to June after growing 0.1% in the previous two quarters.