German June Industrial Production Fell on Construction Output

German industrial production declined in June, led by a drop in construction output.

Production fell 0.9 percent from May, when it gained a revised 1.7 percent, the Economy Ministry in Berlin said today. Economists had forecast a drop of 0.8 percent, the median of 34 estimates in a Bloomberg News survey showed. Production fell 0.3 percent from a year earlier when adjusted for working days.

Today’s report is the third this week to signal Europe’s largest economy is cooling as the sovereign debt crisis erodes demand for its goods. German factory orders declined twice as much as economists had forecast in June and exports dropped, data showed yesterday and today. While the Bundesbank last month estimated moderate growth in the second quarter, aided by domestic spending, the manufacturing industry is contracting and business confidence fell for a third straight month in July.

“The crisis has arrived in Germany,” said Nick Kounis, head of macro research at ABN Amro in Amsterdam. “While the economy will continue to outperform the euro area, the crisis will continue to restrain business and household spending across Europe and the global economy is stop-and-go as well.”

Manufacturing output fell 1 percent in June, today’s report showed. Capital goods production fell 1.6 percent and construction activity was down 2 percent, after jumping 2.6 percent last month.

‘Quite Robust’

Even though industrial production was “quite robust” over the last quarter, the outlook is “more restrained for now,” the ministry said in the statement.

The Bundesbank in June raised its 2012 growth forecast to 1 percent from 0.6 percent on domestic consumption. The European Commission forecasts a 0.3 percent contraction for the 17-nation euro economy as a whole.

With the global economy cooling and the debt crisis hurting spending in the euro region, German companies are noticing the slowdown.

Daimler AG, the world’s third-largest maker of luxury vehicles, last month reported a 13 percent decline in second- quarter operating profit. Volkswagen AG (VOW), Europe’s largest car maker and owner of the Audi brand, on July 26 reported slowing earnings growth as the impact of the debt crisis weighed on demand in its home region.

Still, rising wages and unemployment at a two-decade low are supporting domestic spending, helping to offset waning export demand.

“It’s the domestic economy that’s holding up the German economy,” said Andreas Rees, chief Germany economist at Unicredit Bank AG in Munich. “Yes, the outlook is deteriorating, particularly for exporters, but consumer spending will remain stable and help avert a recession.”

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

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

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