June 9 (Bloomberg) -- German industrial output unexpectedly declined in April led by investment goods, suggesting Europe’s largest economy may struggle to gather strength.

Production dropped 1.9 percent from March when it rose 0.3 percent, the Economy Ministry in Berlin said today. Economists predicted an increase of 0.3 percent, the median of 30 forecasts in a Bloomberg survey showed. From a year earlier, output declined 22 percent when adjusted for work days.

Germany’s economy may be slow to recover from a record contraction in the first quarter as companies trim jobs and the global slump curbs foreign sales. German exports fell more than economists expected in April and European Central Bank Governing Council member Erkki Liikanen said today that there is “no quick recovery is in sight” for the world economy.

“Today’s numbers are a clear warning against any overhasty optimism,” said Carsten Brzeski, an economist at ING Groep NV in Brussels. “At best, the German economy seems to have entered a period of sideways motion.”

Output of investment goods such as machines slumped 6.4 percent in April from the previous month, today’s report showed. Production of intermediate goods fell 1 percent and manufacturing output slipped 2.9 percent from March.

Output of consumer goods rose 0.5 percent in April from the previous month. Energy production increased 5.8 percent and construction output rose 0.5 percent.

Export Slump

A drop in exports and investment were the main reasons behind the economy’s 3.8 percent decline in the first quarter, which was an unprecedented fourth successive quarterly contraction. While Chancellor Angela Merkel’s government has pledged 85 billion euros ($118 billion) to fight the crisis, it still expects the economy to shrink 6 percent this year.

Some recent data has suggested the economic slump is easing. German manufacturing contracted at a slower pace in May and business confidence increased.

There’s an “increased chance of a foreseeable bottoming out of industrial output given a stabilization in demand for industrial goods and the change in trend of sentiment indicators,” the ministry said today. The construction industry is also showing “positive output impulses,” it said.

Daimler AG, the world’s second-largest maker of luxury cars based in Stuttgart, Germany, sees an “improved mood” among high-end auto buyers that may help bolster sales, Chief Executive Officer Dieter Zetsche said in an interview on June 5.

Job Cuts

Still, companies may be forced to step up job cuts. The country’s leading economic institutes forecast that the average number of unemployed will rise to 4.7 million next year from a current 3.46 million. ThyssenKrupp AG, Germany’s largest steelmaker, said on May 8 it will seek to eliminate as many as 2,000 jobs at its main unit by the end of September 2010.

The ECB on June 4 kept its key rate at a record low of 1 percent, with President Jean-Claude Trichet saying the 16-member euro-region economy may only return to growth in 2010.Liikanen said today that while “we may have passed the phase of sharpest declines in output, no rapid recovery in the world economy is in view.”

“The German economy will only reach a sustainable growth path in the first half of 2010,” said Stefan Bielmeier, Chief German economist at Deutsche Bank AG in Frankfurt. “But the downward dynamic in gross domestic product should decline in the next quarters.”

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net

Last Updated: June 9, 2009 07:42 EDT