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German Industrial Production Falls as Economy Cools

German industrial production declined in August as the sovereign debt crisis damped euro-area economic growth and prompted companies to scale back investment.

Production fell 0.5 percent from July, when it gained 1.2 percent, the Economy Ministry in Berlin said today. Economists had forecast a drop of 0.6 percent, according to the median of 39 estimates in a Bloomberg News survey. From a year earlier, production fell 1.4 percent when adjusted for working days.

Europe’s largest economy is cooling as the debt crisis forces governments, companies and consumers across the euro region to retrench. Factory orders dropped 1.3 percent in August, the economy ministry said yesterday. At the same time, exports to nations outside the currency bloc and unemployment at a two-decade low are helping to limit the slowdown.

Germany has long been successful in isolating itself from the downward trend,” said Thilo Heidrich, an economist at Deutsche Postbank AG in Bonn. “ Now this is coming to an end. I expect the economy to stagnate for the rest of the year.”

Construction activity dropped 2.8 percent in August from July, today’s report showed. Production of intermediate goods fell 1.3 percent and investment goods production was unchanged. Consumer goods production rose 0.3 percent and energy output gained 1.5 percent.

Economic growth slowed to 0.3 percent in the second quarter from 0.5 percent in the first, and business confidence fell to the lowest in more than 2 1/2 years last month.

Investor Confidence

Bayerische Motoren Werke AG (BMW), the world’s largest maker of luxury cars, in August reported its first drop in quarterly profit in almost three years and warned that Europe’s debt crisis could cast further clouds on the global growth outlook.

Still, investor confidence rose for the first time in five months in September after the European Central Bank announced an unlimited bond-buying program and Federal Reserve officials agreed to expand monetary stimulus by purchasing additional assets.

German exports unexpectedly rose for a second month in August, jumping 2.4 percent, the Federal Statistics Office said earlier today. Economists had forecast a 0.6 percent decline.

The German economy will expand 0.9 percent this year compared with a 0.5 percent contraction for the euro area as a whole, the IWH and Kiel Economics research institutes forecast last month.

“There are some positive signs out there, but only as long as the crisis in the euro area doesn’t get worse,” said Stefan Muetze, an economist at Helaba in Frankfurt. “We might see some growth for the rest of the year, but it will definitely be a very low number.”

To contact the reporter on this story: Stefan Riecher in Frankfurt at sriecher@bloomberg.net

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

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