German Industry Output Grows Less Than Forecast on Russia

German industrial output grew less than forecast in June as Europe’s largest economy came under pressure from political tensions with Russia.

Production, adjusted for seasonal swings, rose 0.3 percent from May, when it declined a revised 1.7 percent, the Economy Ministry in Berlin said today. While that’s the first increase in four months, economists predicted a gain of 1.2 percent, according to the median of 34 estimates in a Bloomberg News survey. Production fell 0.5 percent in June from the previous year when adjusted for working days.

The European Union agreed last week on its widest-ranging sanctions yet over Russia’s backing of rebels in eastern Ukraine and the Bundesbank has cited geopolitical tensions as contributing to a probable stagnation of the economy in the second quarter. Factory orders fell the most in more than 2 1/2 years in June and sentiment surveys have plunged in Germany, Russia’s biggest trading partner in Europe.

“It’s still too early to say that tensions with Russia are already weighing on hard data,” said Andreas Rees, chief German economist at UniCredit MIB in Frankfurt. “But psychological headwinds are increasing and we have to see whether this pessimism will become persistent.”

The euro fell after the report was published, declining to $1.3376. It traded at 1.3379 at 8:06 a.m. in Frankfurt.

Deal Blocked

German Vice Chancellor Sigmar Gabriel this week blocked a deal for Rheinmetall AG to build a military training center east of Moscow in light of the sanctions. The contract has a value of more than 100 million euros ($134 million) and the Dusseldorf-based company had planned to build more facilities in Russia.

Manufacturing increased 0.1 percent, with intermediate-goods production rising 0.5 percent and consumer-goods output climbing 1.7 percent, today’s report showed. Investment-goods production declined 0.9 percent and energy output was up 0.8 percent, while construction jumped 1.2 percent.

The economic ministry said growth slowed in the second quarter mainly due to a “mild winter” boosting output in the three months through March.

“Additionally, geopolitical events probably contributed to the slowdown,” the ministry said.

The Bundesbank predicted in June that the German economy will expand 1.9 percent this year and 2 percent in 2015. That compares with European Central Bank forecasts for the euro area of 1 percent in 2014 and 1.7 percent next year.

ECB officials gathered in Frankfurt today will leave the central bank’s benchmark rate unchanged at a record low of 0.15 percent, according to all 57 economists in a separate Bloomberg News survey. ECB President Mario Draghi unveiled a range of measures in June to fight the threat of deflation in the currency bloc and policy makers have indicated the central bank will refrain from further action until the impact of the latest stimulus is clear.

Before it's here, it's on the Bloomberg Terminal.