German Industrial Production Unexpectedly Fell in December

German industrial output unexpectedly dropped the most in three years in December as Europe’s debt crisis weighed on confidence and the global economic slowdown damped demand.

Production fell 2.9 percent from November, when it stagnated, the Economy Ministry in Berlin said today. That’s the steepest decline since January 2009. Economists had expected output to remain unchanged, according to the median of 41 forecasts in a Bloomberg News survey. In the year, production rose 0.9 percent when adjusted for working days.

While the German economy probably shrank 0.25 percent in the final three months of last year, data this year suggest it may avoid recession, which is commonly defined as two consecutive quarterly contractions. Business sentiment jumped to a five-month high in January and factory orders gained 1.7 percent in December, driven by demand from outside the 17-nation euro area.

“Today’s industrial production data confirm the slowdown of the German economy,” said Carsten Brzeski, senior economist at ING Group in Brussels. “However, it is neither a crash landing nor a belly flopper, only a breather. This should be as bad as it gets.”

The euro was little changed after the report and traded at $1.3117 at 12:19 p.m. in Frankfurt.

All Sectors

German output declined across all sectors in December, the ministry said. Investment goods production fell 3.6 percent, energy output dropped 2.2 percent and construction activity slumped 6.4 percent.

“The uncertainties of the ongoing debt crisis have left their mark on the real economy,” Siemens AG Chief Executive Officer Peter Loescher said on Jan. 24 after the company reported earnings that missed estimates. “Although a recovery is expected in the second half of the year, we must work hard to achieve our goals.”

European leaders yesterday stepped up pressure on Greek politicians to accept the conditions for a 130 billion-euro ($171 billion) bailout to help it avoid default. Greek lawmakers on Feb. 5 agreed to make additional reductions this year equal to 1.5 percent of gross domestic product.

While the outlook for production remains moderate, a stabilization of orders and improving business surveys suggest the weak phase may end, the ministry said. The Bundesbank forecasts economic growth of 0.6 percent this year and 1.8 percent in 2013.

“It appears that factory orders are stabilizing and a turning point may have been reached,” said Jens Sondergaard, senior European economist at Nomura International Plc in London. “We are becoming slightly more optimistic on the German business cycle, especially if we get a little more clarity on how the Greek situation is going to evolve.”

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