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German Industrial Output Unexpectedly Fell on Construction

German industrial production unexpectedly decreased in June as construction activity waned and investment goods output dropped.

Production declined 1.1 percent from May, when it rose a revised 0.9 percent, the Economy Ministry in Berlin said today. Economists had forecast a gain of 0.1 percent, the median of 26 estimates in a Bloomberg News survey showed. In the year, output rose 6.7 percent when adjusted for working days.

German business confidence fell more than economists forecast in July and investor sentiment dropped to a 2 1/2 year low as the euro area’s worsening debt crisis clouded growth prospects. Still, the Bundesbank said on July 18 the outlook remains “favorable” and Porsche AG, the German sports-car maker that’s merging with Volkswagen AG (VOW), said on Aug. 1 that first-half operating profit surged 59 percent.

Today’s data “are a negative surprise but no reason to panic,” said Mario Gruppe, an economist at NordLB in Hanover, Germany. “The growth dynamic is slowing but the economy will certainly continue to expand at a robust pace for the remainder of the year.”

Europe’s largest economy may grow 3.1 percent this year and 1.8 percent in 2012, the Frankfurt-based Bundesbank predicts.

Production of investment goods decreased 2 percent from May and output of consumer goods fell 1 percent, today’s report showed. Construction output slumped 4.5 percent, while basic- goods production increased 0.3 percent.

‘Solid Expansion’

Production was “significantly damped” by the number of holidays in June, the ministry said. “The output trend is still tilted to the upside,” indicating “solid expansion” in coming months, it said.

Factory orders unexpectedly rose for a third month in June, boosted by investment goods such as machinery, the ministry said yesterday. At the same time, manufacturing growth slowed from Europe to the U.S. and China last month, adding to signs that the global recovery is faltering.

While there are “a number of risks” such as the fiscal crisis and volatile commodity prices “it’s clear that the development of the manufacturing industries remains robust,” Peter Loescher, chief executive officer at Siemens AG (SIE), Europe’s biggest engineering company, said last month. “Demand for industrial goods has also most recently increased.”

Aid Package

European leaders on July 21 announced 159 billion euros ($225 billion) of aid for Greece in their latest attempt to stem a 21-month debt crisis that is threatening to engulf Spain and Italy. The European Central Bank, which ceased buying bonds four months ago, was yesterday forced back into action after governments failed to convince investors that the package of new measures will prevent the crisis from spreading.

Italian industrial production also unexpectedly declined in June as output of consumer goods slipped, and Spanish industrial output dropped after stalling in the previous month. Spain’s economic growth slowed in the second quarter, adding to the government’s difficulties as it struggles with soaring borrowing costs and the euro region’s highest unemployment rate.

“The development of the German economy is by no means worrisome,” said Christian Schulz, an economist at Joh. Berenberg Gossler & Co. in London. “However, enormous risks remain, in particular due to the sovereign-debt crisis.”

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

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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