By Martin Santa
BRUSSELS (Reuters) - Euro zone industrial output unexpectedly fell in March on the year for the first time since August as energy production slumped, data showed on Wednesday, in what could point to slower economic growth going into the second quarter.
Output in the 18 countries sharing the euro dipped 0.1 percent on the year due to the steepest drop in energy production in nearly five years, Eurostat said. Weak energy output was partly due to a mild winter.
Analysts polled by Reuters had expected a 1 percent rise in industrial production, with none of them predicting an annual drop. Production also fell 0.3 percent from February.
The figures added to some recent softer euro zone data including a sharp drop in the ZEW German investor morale index in April, which could suggest growth in the currency bloc continues to struggle to gain stronger momentum.
"(Industrial output) rose 0.2 percent in the first quarter over the last quarter of 2013, which implies that the euro economy should have also continued to expand at the start of the year. That said, somewhat weaker growth looks likely in the second quarter," said Christoph Weil, economist at Commerzbank.
The European Central Bank is preparing some stimulus for the euro zone economy, including potential interest rate cuts and measures to boost lending to small and mid-sized firms and is set to announce them at its June policy meeting, sources familiar with the matter told Reuters.
Economists expect euro zone economic growth will still accelerate to around 0.4 percent quarter-on-quarter in the first three months of the year, from 0.3 percent in the final quarter of 2013, but slow to around 0.2 percent in April-June.
An estimate of first-quarter GDP is due on Thursday. If in line with expectations, it would be the strongest rise in three years.
UTILITIES FEEL THE PINCH
Energy production slumped 11.9 percent in March year-on-year, dropping for the fourth consecutive month and the biggest annual drop since April 2009, Eurostat, the EU's statistics office, said.
The fall offset a 2.6 percent rise in the production of capital goods and a 2.2 percent increase in the output of intermediate goods.
European energy utilities are already feeling the pinch of lower wholesale electricity prices.
Those prices have more than halved in the five years since the global economic crisis because of weak demand, exacerbated by a mild winter, and a rise in the use of renewable energy sources that are given priority access to power grids over conventional gas and coal-fired power plants.
Germany's second-biggest utility RWE said on Wednesday that its first-quarter operating profit fell almost a fifth and central Europe's largest listed utility CEZ reported on Tuesday a 44 percent drop in first-quarter net profit.
"This slowdown is totally accounted for by very weak production of energy goods, down 4 percent quarter-on-quarter on the back of the unusually warm weather conditions prevailing over the winter," said Marco Valli, chief euro zone economist at UniCredit.
(Editing by Susan Fenton)