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Fall In German Industrial Output, Exports Signal Q3 Slowdown


Germany's industrial production dropped more-than expected in July, in a further indication that the ongoing recovery is losing steam and the economy is heading for a weaker third quarter. The outcome is consistent with the factory orders data that showed a marked fall in demand.

Underscoring the weakness of the industrial sector, data from the statistical office, earlier today, showed that Germany's merchandise exports decreased in July.

Industrial production fell a seasonally and calendar-adjusted 1.7 percent in July from the previous month, marking a deterioration from June's 2 percent increase, preliminary data released by the Federal Ministry of Economics and Technology showed Friday. Economists had forecast production to record a 0.5 percent contraction in July.

The weak industrial activity mainly reflected a 3.4 percent decrease in the output of capital goods, and a 1 percent drop in intermediate goods production. Manufacture of consumer goods were lower by 1.2 percent than in June.

Compared to July 2012, industrial production fell 2.2 percent, reversing the previous month's 0.1 percent gain. Economists were looking for a 0.9 percent annual increase. During the June-July period, industrial output increased 0.5 percent from the preceding April-May period, data showed.

Jennifer McKeown of Capital Economics said that the volatile production data suggest that the euro-zone economy did not make a storming start to the third quarter. The recovery in the region will be very modest, justifying the ECB's cautious tone yesterday, and suggesting that further monetary policy support might be yet to come, the economist noted.

The production data came was not a surprise as the economy ministry yesterday said new orders received by German manufacturers dropped 2.7 percent sequentially in July, offsetting the strong growth seen in June. July's fall was largely due to the absence of the big-ticket demand that boosted growth in the previous month.

The statistical office reported today that Germany's merchandise exports decreased 1.1 percent sequentially in July. This, combined with a modest increase in imports, resulted in a decline in the trade surplus.

Meanwhile, in a likely sign that July's downturn was short-lived and the German manufacturing sector is back on the recovery path, the latest purchasing managers' survey compiled by Markit Economics showed that factory activity increased in August at the strongest pace in more than two years.

The Ifo Institute said that confidence among German businesses rose further in August to the highest level in 16 months. Sentiment among manufacturers improved significantly as their assessment of the current situation and future expectations turned more positive amid signs of the economic recovery gaining momentum.

The German economy expanded 0.7 percent in the second quarter after stagnating in the March quarter, signaling that developments of the economy is gaining momentum following the the weak start into the year.

The Bundesbank projects the economy to expand 0.3 percent this year, and forecasts growth to return to normal in the second half of 2013.

by RTTNews Staff Writer

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