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Capital Economics: Pick-up In German Growth Only Likely On Demand Recovery

Recent production slowdown in the German economy was broad-based, extending beyond the automobile and chemical industries, and a sustained pick-up is only likely if demand recovers, Capital Economics economists said.

"The weakness of other sectors accounts for more of the slowdown in production since 2017," Andrew Kenningham and Dominik Leusder, economists at the research group, said.

Over the past year German industrial production has suffered its sharpest slump since 2009, they said.

However, Germany's industrial production rose for a second straight month in March and factory orders rebounded. Elsewhere, the purchasing managers' survey showed that the contraction in the German manufacturing sector eased slightly in April.

The rebound in the economic growth in the first quarter was entirely driven by a surge in construction and the two economists suspect that this was largely weather related and hence, will be short-lived.

"The upshot is that there may be a rebound in motor vehicle and chemical output in the coming months which would lift industrial production," Kenningham and Leusder said.

"But a sustained and broad-based industrial recovery will not happen until there is a lasting pick-up in domestic and external demand."

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