German Industrial Production Rises in Sign of Recovery

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Photographer: Ralph Orlowski/Bloomberg

Technicians carry a Trent XWB blisk engine component during manufacture at the Rolls-Royce Deutschland Ltd. & Company KG factory in Oberursel.

German industrial production rebounded in August, adding to signs that Europe’s largest economy is benefiting from the euro area’s recovery.

Output (GRIPIMOM), adjusted for seasonal swings, rose 1.4 percent from July, when it dropped a revised 1.1 percent, the Economy Ministry in Berlin said today. Economists forecast an increase of 1 percent, according to the median of 43 estimates in a Bloomberg News survey. Production advanced 0.3 percent from a year earlier when adjusted for working days.

Germany’s economy is supported by an “extraordinarily good” consumer climate, helped by a robust labor market, the Bundesbank said last month. The euro area, the country’s biggest trading partner, is a potential source of increased demand after the 17-nation bloc emerged from its longest-ever recession. At the same time, the recovery is uneven, with data yesterday showing German factory orders fell for a second month in August after the biggest gain in 2 1/2 years in June.

“In the short term, the prospects for German industry remain positive,” said Carsten Brzeski, senior economist at ING Groep NV in Brussels. “Industrial production should further benefit from the recent inventory reduction and the increase in new orders earlier this year. In the longer term, however, the industry needs more fuel to return to full strength.”

Bundesbank Outlook

German manufacturing output gained 2.1 percent in August, with production of investment goods surging 4.4 percent, today’s report showed. Construction dropped 1.9 percent, after the prior month’s 2.7 percent gain. Energy output slid 0.2 percent.

The Bundesbank said in its monthly bulletin on Sept. 23 that it sees signs the economy will improve for the rest of this year. The Frankfurt-based central bank predicts growth of 0.3 percent in 2013 and 1.5 percent in 2014. Gross domestic product expanded 0.7 percent in the three months through June after stagnating in the first quarter.

“The upward trend in industrial output continued,” the ministry said in a statement. “The phase of weakness during the winter has been overcome. Manufacturing is on a moderate, and construction on a somewhat stronger, path of growth.”

Business confidence as measured by the Ifo (GRIFPBUS) research institute rose for a fifth month in September to the highest level since April 2012, ZEW investor sentiment climbed to a three-year high and GfK consumer confidence is at the strongest since 2007. While the country’s jobless rate unexpectedly rose to 6.9 percent last month, it remains near a two-decade low.

Auto Demand

Daimler AG (DAI) said on Oct. 4 that it expects record Mercedes-Benz sales this year, while Porsche AG said yesterday that profit growth is likely to resume in 2014.

“There is a higher chance of getting positive growth surprises in Germany in the next few quarters than being surprised on the downside,” said Andreas Rees, chief German economist at UniCredit MIB in Munich. “The synchronous recovery in major euro-zone countries may trigger multiplier effects with positive impulses reinforcing each other.”

European Central Bank President Mario Draghi said on Oct. 2 that economic data for the euro area confirm the picture of “gradual improvement from low levels” after the economy expanded 0.3 percent in the three months ended June, snapping six quarters of contraction. A gauge of regional services output expanded more than initially estimated in September and manufacturing activity expanded for a third month, according to surveys of purchasing managers.

IMF Downgrade

Draghi also warned that the U.S., the world’s biggest economy, has the potential to derail the global recovery. President Barack Obama and Republicans are at an impasse over the U.S. debt ceiling, which Treasury Secretary Jacob J. Lew saying Congress needs to increase by Oct. 17 or risk defaulting on payments.

The International Monetary Fund cut its global outlook yesterday and warned that a U.S. government default could “seriously damage” the world economy. Growth worldwide will be 2.9 percent this year and 3.6 percent next year, the IMF said in a report released in Washington. That compares with July predictions of 3.1 percent for 2013 and 3.8 percent for 2014.

“The economic-recovery trend is going in the right direction,” said Mario Gruppe, an economist at NordLB in Hanover, Germany. “At the same time, it could be flanked by the one or other disturbance. Comparatively weak demand from Europe, especially the euro area, signals that the downside risks for the overall economic situation the ECB has stressed multiple times aren’t all that unrealistic.”

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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