German Industrial Production Rises More Than Forecast: Economy

German industrial output rebounded more than economists forecast in May as construction buttressed Europe’s largest economy against the sovereign debt crisis.

Production rose 1.6 percent from April, when it dropped 2.1 percent, the Economy Ministry in Berlin said today. Economists forecast an increase of 0.2 percent, the median of 36 estimates in a Bloomberg News survey shows. Production was unchanged from a year earlier when adjusted for working days.

The European Central Bank cut interest rates to a record low yesterday as the worsening debt crisis threatens to tip the euro area, Germany’s largest export market, into recession. While German business and investor confidence have slumped amid signs growth is slowing, record-low unemployment and demand from outside the region have helped insulate the economy. Factory orders unexpectedly rose 0.6 percent in May, the Economy Ministry said yesterday.

“German factories are still doing quite well, but we’ll see some skid marks as a result of the euro region’s debt crisis in the coming months,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “In the euro area, everything points toward recession and the global economy has slowed to an extent that it can’t compensate for the weakness in Europe.”

Spanish industrial production fell for the ninth month in May as the recession in the euro area’s fourth-largest economy worsened amid rising borrowing costs. Output at factories, refineries and mines fell 6.1 percent from a year earlier, after an 8.3 percent decline in April, the National Statistics Institute in Madrid said today.

Stocks Drop

European stocks declined for a third day, with the Stoxx Europe 600 Index (SXXP) down 0.3 percent to 256.12 at 12:15 p.m. in Frankfurt.

German manufacturing output gained 1.8 percent in May, driven by a 3.8 percent jump in production of consumer goods, today’s report showed. Investment goods production rose 1.7 percent and construction activity was up 3.1 percent.

Construction gained 7 percent over April and May compared with the previous two months, the ministry said. “Overall, the chances for a stable second quarter in the industrial sector have improved, despite ongoing risks from the euro area,” it said in a statement.

The Bundesbank last month raised its 2012 growth forecast to 1 percent from 0.6 percent, citing domestic consumption.

‘More Difficult’

German carmakers Porsche SE and Volkswagen AG are likely to report increased vehicle deliveries this year, though “the second half of 2012 is certain to become more difficult and challenging for the automotive industry as a whole,” Chief Executive Officer Martin Winterkorn said on June 25.

Siemens AG Chief Financial Officer Joe Kaeser indicated on June 26 that it will be more difficult to meet financial targets set for 2012 as demand tapers off at some industrial automation units and Chinese growth fails to pick up.

In the euro area, there are signs of “a renewed weakening of economic growth and heightened uncertainty,” ECB President Mario Draghi said yesterday after policy makers cut the benchmark interest rate to 0.75 percent and the deposit rate to zero.

“We still expect a gradual, slow recovery around the end of the year,” Draghi said. “The baseline scenario hasn’t changed, although the downside risks are now materializing.”

Euro-area economic confidence slumped to the lowest in more than 2 1/2 years in June, services and manufacturing output contracted for a fifth month and unemployment rose to a record in May. The European Commission predicts the 17-nation economy will contract 0.3 percent this year.

U.S. Jobs

In the U.S., the Labor Department will release its monthly jobs report at 8:30 a.m. in Washington. Private jobs increased by 106,000 and total non-farm payrolls climbed 100,000 in June, according to a Bloomberg survey of economists. The jobless rate probably held at 8.2 percent, another survey projected.

China’s central bank yesterday cut benchmark interest rates for the second time in a month and allowed banks to offer bigger discounts on their borrowing costs, stepping up efforts to reverse a slowdown in the world’s second-biggest economy.

Chinese export growth slowed to 10.5 percent in June from a year earlier compared with 15.3 percent in May, according to the median estimate in a Bloomberg survey of economists. That report is due on July 10.

“The global economy is very linked together and there is weakness around the world, in Europe of course, spilling to Asia and the U.S.,” Stephen Roach, a professor at Yale University and former non-executive chairman for Morgan Stanley in Asia, told Susan Li on Bloomberg Television’s “First Up.” “The European economy is in recession” and further ECB rate cuts aren’t “going to change this outcome.”

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

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

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