German Industrial Output Unexpectedly Increased in July

German Industrial Production Unexpectedly Increased in July
German industrial production unexpectedly rose in July. Photographer: Guenter Schiffmann/Bloomberg

German industrial production unexpectedly rose in July, adding to signs that Europe’s largest economy is weathering the region’s debt crisis.

Production rose 1.3 percent from June, when it fell a revised 0.4 percent, the Economy Ministry in Berlin said today. Economists forecast unchanged production, the median of 39 estimates in a Bloomberg News survey showed. Output fell 1.4 percent from a year earlier when adjusted for working days.

Today’s report is the third to suggest the economy made a good start to the third quarter, with factory orders and exports also rising in July. Still, growth slowed in the second quarter and business confidence has dropped for four straight months as the debt crisis dents demand for German goods in other euro-area countries.

“German companies were holding up well amidst euro-zone turmoil,” said Andreas Rees, chief Germany economist at UniCredit in Munich. “While we do not expect drastic decreases in overall industrial activity, it is only a question of time before hard data will reflect what we already know from business sentiment figures -- a loss in momentum in coming months.”

Output of investment goods increased 3.8 percent in July after dropping 1.5 percent in June, today’s report showed. Construction activity rose 1.9 percent and consumer goods production fell 0.4 percent. June industrial production was revised up from the 0.9 percent drop initially reported.

‘Revived Somewhat’

“Manufacturing production has revived somewhat,” the Economy Ministry said in an e-mailed statement. “Orders so far this year are stable, although the mood there is subdued.” There are indications that industrial production “will continue to prove robust,” it said.

Factory orders rose 0.5 percent in July, the ministry said yesterday, as domestic demand for investment goods helped offset a decline in sales to the euro area. The Federal Statistics Office said today that exports also increased 0.5 percent that month. Economists had predicted a 0.5 percent decline.

Still, the effects of the crisis in the euro area are catching up with German manufacturers. Volkswagen AG, Europe’s largest car maker, reduced its internal sales forecast for 2012 by as many as 100,000 vehicles as the turmoil saps demand, according to a person familiar with the matter.

German unemployment edged higher for a fifth month in August, even as the jobless rate held at a two-decade low of 6.8 percent.

Economic Slowdown

Economic growth slowed to 0.3 percent in the second quarter from 0.5 percent in the first.

The Bundesbank, which in June predicted German growth of 1 percent this year, said on Aug. 20 that uncertainty in the euro area “could have a more negative impact on economic activity in Germany in the second half of the year.”

“In the next few months we are expecting a noticeable deterioration in industrial production,” said Ralph Solveen, head of economic research at Commerzbank AG in Frankfurt. “The German economy is slowing and could even contract slightly in the second half of the year.”

The European Central Bank yesterday agreed an unlimited bond-buying program that aims to backstop countries like Spain. Global currency, stock and bond markets rallied on optimism that Europe’s debt crisis, now in its third year, can be brought under control.

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