- Production declined 1.3% in May vs. estimated 0.1% gain
- U.K. decision to leave the EU could curb German growth
German industrial production dropped the most in 21 months in May in a sign that the headwinds from a global economic slowdown and political uncertainty in Europe damped activity.
Production, adjusted for seasonal swings, fell 1.3 percent from the previous month, when it rose a revised 0.5 percent, data from the Economy Ministry in Berlin showed on Thursday. Economists in a Bloomberg survey had predicted a 0.1 percent rise in the typically volatile gauge. Output fell 0.4 percent from a year earlier.
The report underscores the challenges facing German manufacturers, with signs of fragility in the global economy now likely to be exacerbated by the U.K.’s decision to quit the European Union. The British vote in June could further weaken the German economy, Bundesbank President Jens Weidmann warned last week.
“The latest data only confirm the picture of a two-speed economy,” said Carsten Brzeski, chief economist of ING-Diba AG in Frankfurt. “While the domestic economy is booming, the former growth engines are weakening. With weaker industrial production, a traditional increase in investment becomes also less likely.”
The decline was led by investment goods, which dropped 3.9 percent, while consumer goods gained 0.5 percent. Construction fell 0.9 percent from April and intermediate goods declined 0.3 percent, the ministry report showed. Output of manufacturing fell 1.8 percent, while energy gained 3.9 percent.
The ministry said that the large number of holidays in May could have contributed to weaker output, yet that there are signs production might pick up in the coming months.