(Adds economist comments)
By Dale Hudson
BRUSSELS, Nov 22 (Reuters) - Euro zone industrial new orders came in well below expectations in September, hit by dips in chemicals and metals, and economists warned of a sharp growth slowdown next year as record euro strength takes its toll.
The European Union statistics office said on Thursday that orders in the 13 countries using the euro fell 1.6 percent month-on-month and rose 2.0 percent year-on-year.
Economists polled by Reuters had expected a 0.8 percent decline on the month and a rise of 6.1 percent year-on-year.
“We have all the ingredients coming together for a very sharp slowdown in euro zone growth next year,” said David Brown, an economist at Bear Stearns International.
“Euro zone business expectations are in decline so it would be natural to expect companies to scale back output, investment and new hiring intentions. Once consumers begin to feel that job security is under threat that is the point where consumer demand begins to fall rapidly too,” he said.
Eurostat revised its August data upwards to increases of 0.8 percent from the previous month and 5.3 percent versus a year earlier, versus the previously reported rises of 0.3 percent monthly and 5.1 percent year-on-year.
Without volatile orders for transport equipment, industrial orders fell 1.9 percent on the month in September and rose 2.8 percent on the year.
The biggest monthly falls were in chemicals and chemical products, down 3.3 percent, and in basic metals and fabricated metal products, down 2.7 percent.
Euro zone manufacturers have been feeling the pinch of record euro strength and more expensive borrowing as lenders became more risk averse after the credit crunch took hold in August, economists said.
“September’s marked fall in industrial orders adds to the evidence that the euro zone manufacturing sector is being increasingly pressurised by the very strong euro, elevated oil prices, higher interest rates and the credit crunch,” said Howard Archer, chief European economist at Global Insight.
The euro hit a record high of $1.4873 on Thursday according to Reuters data, bringing its year-to-date gains to around 12.5 percent as the market upped the ante on the U.S. Federal Reserve to deliver an interest rate cut next month.
It also set fresh all-time highs against the European Central Bank’s trade-weighted basket of 24 currencies at 111.17 EUREER=ECBF.
Oil steadied above $97 a barrel on Thursday, after falling just shy of the $100 milestone the previous session.
“If you look at the longer run you see that the momentum is decelerating in orders, and this is in line with what we are seeing in Germany,” said Christoph Weil, European economist at Commerzbank.
“Now we are in the phase where high interest rates are having an effect on the economy,” he said.
German manufacturing orders fell much more than expected in September, dropping 2.5 percent on the month due to a big fall in orders for capital goods, preliminary government figures showed on Nov. 6.
“The clear faltering in euro zone manufacturing activity reinforces the case for the ECB to hold back from enacting any further interest rate hikes, particularly given the euro continues to climb to new highs,” said Archer at Global Insight.
New orders give an indication of future industrial production and therefore overall economic activity, which in turn may impact the monetary policy of the ECB.
The ECB left interest rates on hold at 4 percent earlier this month but pointed to upside risks to inflation as well as downside risks to growth, a combination which most analysts expect will keep rates unchanged until the end of 2008. (Editing by Paul Taylor)