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Germany Industrial Output & Exports Plunge; Central Bank Trims Outlook

germany jun07 lt

Suggesting a weak start to the second quarter, Germany's industrial production and exports declined more-than-expected in April as global trade disputes and Brexit took a toll on foreign demand.

Elsewhere, the Bundesbank downgraded the growth projections for the biggest euro area economy, citing lackluster outlook for exports amid escalating trade disputes.

Industrial output slid 1.9 percent month-on-month, in contrast to a 0.5 percent rise seen in March, data from Destatis showed Friday. This was the biggest fall in almost four years. Production was forecast to drop marginally by 0.2 percent.

Year-on-year, industrial output decreased 1.8 percent after falling 0.9 percent in the previous month. Economists had forecast a 0.4 percent drop.

The economy ministry said a more muted industrial economy is still to be expected in months ahead.

Another report from Destatis showed that exports and imports declined markedly in April.

Exports decreased 3.7 percent month-on-month in April, in contrast to a 1.6 percent rise in March, and much bigger than the forecast of 0.9 percent drop.

At the same time, imports fell 1.3 percent, reversing March's 0.7 percent increase. Imports were forecast to drop 0.2 percent.

As the fall in exports exceeded the decline in imports, the trade surplus fell to EUR 17 billion from EUR 20 billion a month ago.

Year-on-year, exports decreased 0.5 percent after rising 2 percent in March. At the same time, growth in imports eased to 2.1 percent from 4.7 percent.

In the latest report released Friday, Bundesbank forecast the largest euro area economy to grow just 0.6 percent this year compared to its previous projection of 1.6 percent.

The outlook for 2020 was lowered to 1.2 percent from 1.6 percent. GDP will then accelerate slightly to 1.3 percent in 2021, the bank said.

Although the forces driving the domestic economy remain intact, underlying cyclical trend is subdued. Lackluster exports are hurting the industry, the bank noted.

Bundesbank President Jens Weidmann said, "Once foreign demand picks up, German economic growth will be more broadly based again."

Carsten Brzeski, an ING economist, said there is no doubt that the German economy had a disappointing start to the second quarter, justifying the European Central Bank's new dovishness.

It now needs even stronger domestic demand and a bounce back in May and June to avoid a return to recessionary territory, Brzeski added.

Ralph Solveen, a Commerzbank analyst, said the economy will even shrink slightly in the second quarter. However, a pronounced recession is not expected.

The European Central Bank's expansive monetary policy continues to support domestic demand, and foreign demand should pick up again somewhat later in the second half of the year, the analyst noted.

The ECB on Thursday raised its euro area growth forecast for this year to 1.2 percent from 1.1 percent. But the outlook for next year was slashed to 1.4 percent from 1.6 percent and the forecast for 2021 was cut to 1.4 percent from 1.5 percent.

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