German Factories Weather Debt Turmoil Hurting Region: Economy

German industrial production rose more than economists forecast in October as factories weathered debt turmoil that hurt output in other countries across the region and threatens to push it into a recession.

Production climbed 0.8 percent from September, when it dropped 2.8 percent, the Economy Ministry in Berlin said today. Economists forecast a 0.3 percent increase, according to the median of 33 estimates in a Bloomberg News survey. Separate reports showed industrial output declined in the U.K., Italy and Norway.

Europe’s two-year-old debt crisis has damped demand for German goods, increasing the chance that the economy will contract. Still, factory orders rebounded 5.2 percent in October, the ministry said yesterday, and business confidence and hiring increased in November, suggesting domestic consumption may help Germany weather the downturn.

“Germany may just be escaping economic contraction in the fourth quarter,” said Christian Schulz, an economist at Berenberg Bank in London. “Despite the intensification of the European market-confidence crisis, Germany is once more dodging the trend.”

U.K. manufacturing output fell 0.7 percent in October, more than double the 0.3 percent median forecast of 21 economists in a Bloomberg News survey. Italian industrial production dropped 0.9 percent, while in Norway it slumped by 1.8 percent from September.

Investment Goods

In Germany, production of investment goods rose 2.2 percent in October from the previous month, when it fell 4.5 percent, today’s report showed. Energy output advanced 1.1 percent while construction activity increased 0.4 percent.

“After two straight declines, industrial production saw a certain recovery in October,” the Economy Ministry said in a statement. “In view of the restrained development of industrial and construction orders, output should remain muted in coming months.”

The European Central Bank cut its benchmark interest rate by a quarter percentage point on Nov. 3, saying the 17-nation euro region is moving toward a “mild recession.” The Frankfurt-based central bank may pare its key rate further tomorrow to 1 percent, according to a Bloomberg survey of economists.

Volkswagen AG, Europe’s largest carmaker, said yesterday it is “more cautious” on 2012 as the euro region’s debt crisis curbs orders. Siemens AG (SIE), Europe’s biggest engineering company, forecast stagnant profit for next year as sales growth moderates and the global economy cools.

Global Demand

“Production will fall in the fourth quarter from the third,” said Ulrike Rondorf, an economist at Commerzbank AG in Frankfurt. “Demand for German goods has weakened globally, not just as a result of the euro region’s debt crisis.”

China sees an increase in domestic costs and a slowdown in overseas demand putting “severe” pressure on its exports next year. While the nation can achieve export gains as long as Europe’s crisis doesn’t deepen, it will need to focus on strengthening links with emerging markets, Wang Shouwen, head of the foreign trade department, said at a briefing in Beijing today.

The euro area’s gross domestic product still rose 0.2 percent in the three months through September, the European Union’s statistics office said yesterday, confirming a Nov. 15 estimate. German GDP rose 0.5 percent in the third quarter, up from a 0.3 percent gain in the previous three months.

Australian Growth

A separate report today showed Australia’s economy grew faster than estimated last quarter on consumer spending and mining-driven investment. Gross domestic product rose 1 percent in the three months ended Sept. 30, after growing a revised 1.4 percent the prior quarter, the fastest pace in four years. The median of 24 estimates in a Bloomberg News survey was for 0.8 percent growth.

Bayerische Motoren Werke AG, Daimler AG and Audi AG plan to limit holiday breaks for the second year in a row as demand holds up for luxury vehicles in China. BMW and Daimler’s Mercedes-Benz will shut most factories for just one week between Christmas and New Year’s Day, while Audi will close European plants for two weeks, the carmakers said today.

German consumer spending may also help shield the economy from faltering exports. Domestic demand is improving as households expect an increase in income prompted by “the currently very favorable employment environment,” the Bundesbank said Nov. 21 in its monthly report. German retail sales rose 0.7 percent in October, more than economists forecast.

Consumer borrowing in the U.S. probably rose by $7 billion in October, compared with a $7.4 billion jump the previous month, according to the median estimate of economists surveyed by Bloomberg News before the Federal Reserve releases the figures today.

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net

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