German Industrial Production Unexpectedly Stagnates

German industrial production unexpectedly stagnated in January as Europe’s debt crisis weighed on company spending and investment.

Production was unchanged from December, when it rose 0.6 percent, the Economy Ministry in Berlin said today. Economists forecast a 0.4 percent gain for January, according to the median of 42 estimates in a Bloomberg News survey. December output was revised up from an initially reported 0.3 percent increase. From a year earlier, production fell 1.3 percent when adjusted for working days.

While confidence among German entrepreneurs and investors jumped in February, factory orders unexpectedly fell 1.9 percent in the first month of the year as the recession in the euro area, Germany’s largest export market, damped demand. The European Central Bank revised down its forecasts yesterday to predict the 17-nation economy will shrink 0.5 percent in 2013.

“The improvement in confidence indicators should have actually begun to be reflected in a positive production trend,” said Thilo Heidrich, an economist at Deutsche Postbank AG in Bonn. “It’s difficult to assess the state of the economy at the start of the year but in general, we stick to our expectation that the German economy will grow in the first quarter.”

The euro was little changed after the report and traded at $1.3119 at 12:41 p.m. in Frankfurt, up 0.1 percent today. The Stoxx Europe 600 Index rose 0.5 percent to 294.73.

Manufacturing Output

Manufacturing output fell 0.2 percent in January, with production of investment goods dropping 1.5 percent, today’s report showed. Energy production fell 2.3 percent while construction activity rose 3 percent.

The Bundesbank predicts the German economy, Europe’s largest, will return to growth in the current quarter after it contracted 0.6 percent in the final quarter of 2012.

Germany’s chemical industry was “surprisingly strong” in January and February as industrial customers started restocking inventories, Utz Tillmann, head of the VCI German chemical association, said yesterday. BASF SE, the world’s biggest chemical maker, said last month it expects earnings and sales to rise this year.

At the same time, recent economic data in the euro area have been “disappointing” and policy makers discussed cutting interest rates yesterday, ECB President Mario Draghi said. They elected to keep the benchmark rate at 0.75 percent, already a record low, and maintained a forecast for a gradual economic recovery in the second half of the year.

France, Spain

French industrial confidence rose for a third month in February, suggesting demand from abroad is supporting Europe’s second-largest economy, a report showed today. Still, Spanish industrial output shrank 5 percent in January from a year earlier. In Finland, production slumped 3.6 percent in January from December, while in Turkey output rose 2.3 percent.

To offset weakness in Europe, some German companies are tapping faster growing regions. Carmakers are shrugging off the European auto-market decline as sales growth in China and the U.S. prompts them to increase luxury-car production.

Bayerische Motoren Werke AG, targeting a third consecutive year of record sales, delivered more than 250,000 vehicles in the first two months of 2013, a jump of about 6 percent, and “our factories are running at full capacity,” Chief Executive Officer Norbert Reithofer said on March 5. Daimler’s Mercedes-Benz unit is adding shifts to meet demand for compact cars, CEO Dieter Zetsche said the same day.

Chinese Exports

China’s exports exceeded forecasts in February, an indication that improving global demand may help to sustain the rebound in the world’s second-biggest economy. Commerce Minister Chen Deming said in Beijing today that he’s “cautiously optimistic” on foreign trade this year.

Elsewhere in Asia, revised figures showed that Japan returned to growth in the fourth quarter, bolstering Prime Minister Shinzo Abe’s campaign to end 15 years of deflation and revive the world’s third-biggest economy.

In the U.S., payrolls probably grew in February, suggesting that employers were undaunted by the budget impasse in Washington.

“Exports to countries outside Europe play a central role in Germany’s recovery,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “We can’t expect anything amazing, but with business confidence improving things will turn for the better. Much will be decided in the first quarter.”

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