German Industrial Production Unexpectedly Declines
German industrial production unexpectedly declines
Guido Krzikowski/Bloomberg
An employee assembles a MAN SE truck on the assembly line at the company's factory in Munich.
An employee assembles a MAN SE truck on the assembly line at the company's factory in Munich. Photographer: Guido Krzikowski/Bloomberg
Industrial production in Germany, Europe’s largest economy, unexpectedly declined in June led by a drop in investment goods such as machinery and trucks.
Production fell 0.6 percent from May, when it rose a revised 2.9 percent, the Economy Ministry in Berlin said today. Economists had forecast a gain of 0.5 percent, the median of 25 estimates in a Bloomberg News survey showed. From a year earlier, production increased 10.9 percent when adjusted for the number of work days.
Economic growth in the euro region, Germany’s biggest export market, may weaken as governments cut spending to trim budget deficits and restore investor confidence. At the same time, Europe’s sovereign-debt crisis has pushed the euro down 8 percent against the dollar this year, making exports to countries outside the 16-nation currency bloc more competitive.
“It’s not the end of the world,” said Ralph Solveen, an economist at Commerzbank AG in Frankfurt, who forecasts the German economy grew 1.5 percent in the three months through June. “Production rose strongly in the second quarter and orders suggest that output will continue to increase markedly.”
The euro extended its decline against the dollar after the report and was down 0.2 percent to $1.3165 at 1:03 p.m. in Frankfurt.
‘Foreign Impulses’
Manufacturing output fell 0.9 percent from May, when it rose 3.2 percent, today’s report showed. Output of investment goods declined 1.1 percent in the month and production of basic goods dropped 1 percent. Construction output fell 0.9 percent.
“Strong foreign impulses and a revival of investment activity significantly boosted production in the second quarter, the ministry said in the statement. “Given the considerably improved order situation, output should remain a pillar of a continued economic upswing in Germany over the coming months.”
Adding to signs of recovery, German manufacturing orders jumped more than twice as much as economists forecast in June. Business confidence surged in July and companies including Infineon Technologies AG, Europe’s second-largest chipmaker, and Siemens AG, Europe’s biggest engineering company, have raised their earnings forecasts.
Euro-area data “suggest a strengthening in economic activity in the second quarter of 2010, and the available data for the third quarter are better than expected,” European Central Bank President Jean-Claude Trichet said yesterday. He sees a “moderate and still uneven” recovery.
‘Muted Optimism’
“While today’s figures came in weaker than expected, the German growth locomotive is definitely not slowing down,” said Peter Vanden Houte, an economist at ING in Brussels. “In the light of the current figures, the ECB’s muted optimism on the economy seems fully warranted.”
Spain’s economic growth accelerated to 0.2 percent in the second quarter from 0.1 percent in the previous three months, the Bank of Spain said in an estimate today. The Italian economy expanded 0.4 percent.
The 16-nation region probably expanded 0.7 percent in the second quarter, with German growth accelerating to 1.3 percent from 0.2 percent, two separate Bloomberg surveys show. The reports will be published on Aug. 13.
Exports, which surged 9.2 in May, will be one of the “main driving forces” for growth this year, the Bundesbank said on June 11. The central bank predicts the economy to grow 1.9 percent this year and 1.4 percent in 2011.
Still, companies may struggle to maintain their sales growth as the global economy shows signs of weakening. China’s economic expansion slowed in the second quarter. In the U.S., the world’s largest economy, consumer spending, pending home sales and factory orders were all weaker than forecast in June.
European austerity measures introduced to cut budget deficits may also undermine the recovery.
“Budget cuts are a serious risk,” said Arnd Schaefer, an economist at WestLB in Dusseldorf, Germany. “They will probably damp growth but the German economy is very well positioned and in excellent shape.”
To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net.
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