German Production Jumped More Than Forecast in October on Machinery Demand

Industrial production in Germany, Europe’s largest economy, rose almost three times as much as economists forecast in October, led by demand for investment goods such as machinery.

Production jumped 2.9 percent from September, when it fell a revised 1 percent, the Economy Ministry in Berlin said today. That’s the biggest increase since May. Economists had forecast a gain of 1 percent, the median of 40 estimates in a Bloomberg News survey showed. From a year earlier, output increased 11.7 percent when adjusted for the number of work days, after rising a revised 7.7 percent in September.

Germany’s economy has powered euro-region growth as companies boosted hiring and output to meet global demand. Business confidence surged to a record in November and the Bundesbank last week forecast the economy to expand at the fastest pace in almost two decades this year. Still, the euro- region recovery may slow in 2011 as governments step up austerity measures, the European Commission said on Nov. 29.

“The data point to further robust growth in the last quarter of the year,” said Ralph Solveen, head of economic research at Commerzbank AG in Frankfurt. “The economy is still on a strong footing even with the growth momentum weakening in the coming months.”

The euro was little changed after the release, trading at $1.3231 at 12:23 p.m. in Frankfurt, down from $1.3261 yesterday. It has depreciated 7.6 percent against the dollar this year, boosting exports by making them more competitive.

Manufacturing Output

Manufacturing output rose 3.2 percent in October from the previous month, when it dropped 0.8 percent, today’s report showed. Output of investment goods increased 4.6 percent in the month and production of durable consumer goods gained 2.7 percent. Construction output increased 1.3 percent while energy production fell 0.3 percent, the ministry said.

“The production trend within the industrial sector remains tilted to the upside,” the ministry said in the statement.

While Germany’s recovery is becoming more broad-based as consumers step up spending, it’s also widening the gap with euro-area nations such as Greece, Ireland, Portugal and Spain, which are struggling to push down budget deficits.

“Over the medium-term, spending cuts in peripheral countries will hurt German exports,” said Mario Gruppe, an economist at NordLB in Hanover, Germany. “But the underlying German expansion trend shouldn’t be massively distorted.”

Exports Drop

A separate report today showed that German exports unexpectedly dropped in October. Sales abroad, adjusted for working days and seasonal changes, fell 1.1 percent from September, when they rose 3 percent, the Federal Statistics Office in Wiesbaden said.

Germany’s gross domestic product will rise 3.6 percent in 2010, 2 percent in 2011 and 1.5 percent in 2012, the Bundesbank said Dec. 3. The European Commission in Brussels last month forecast the euro-region economy to expand 1.7 percent this year and 1.5 percent in 2011, with Germany driving growth.

Mercedes-Benz and German rival Bayerische Motoren Werke AG will both shorten Christmas breaks at their factories because of surging demand for new models, the companies said last month.

“Production capacity is the limiting factor at the moment,” Michael Rebstock, a spokesman for BMW, said in a phone interview. “We are producing as much as we can and are happy for every additional shift we can get.”

To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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