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German Construction Surge Gives a Lift to Beleaguered Economy

German Industrial Output Rises, Keeping Hope for Recovery Alive

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German industrial output rose in February thanks a surge in construction, a rare respite from a barrage of bleak reports pointing to a slump in Europe’s largest economy.

Production increased 0.7 percent, beating economist estimates for a 0.5 percent gain, and January was revised up to show no decline. But manufacturing itself slipped 0.2 percent in February, a fifth drop in six months, meaning it wasn’t all good news.

From a year earlier, output was down 0.4 percent, a far more modest decline than seen in previous months. The euro edged higher after the report and was up 0.1 percent at 8:35 a.m. Frankfurt time.

German Construction Surge Gives a Lift to Beleaguered Economy

The Economy Ministry said mild weather contributed to the “good result,” cautioning that momentum in industry will remain soft amid weak orders and subdued sentiment. That echoes its comments on Thursday, when it also warned of “subdued” activity.

Also on Thursday, data showed factory orders plunged the most in two years and the country’s leading research institutes slashed their 2019 growth forecast. Prospects are increasingly fragile, after strong domestic demand and a buoyant labor market saved the economy from a recession at the end of last year.

What Bloomberg Economics Says

“The rise of the headline figure bodes well for GDP growth in the first quarter. However, stripping out a boom in construction leaves a far less rosy picture. And the recent decline in manufacturing orders foreshadows weakness ahead. All in all, the weakening of global demand is likely to keep GDP growth below trend.”

--David Powell and Maeva Cousin
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Germany’s export-dependent manufacturers are particularly exposed to rising trade tensions, a slowdown in China and uncertainties surrounding Britain’s exit from the European Union.

“Manufacturers are still struggling,” said Jack Allen, senior European economist at Capital Economics. “We think that global economic growth will remain sluggish this year and next, so Germany, which is highly sensitive to developments in the global economy, is unlikely to get much support from foreign demand.”

European Central Bank policy makers are pinning their hopes on a rebound in the euro area in the second half, though they’re still planning not to raise interest rates at all this year. They will meet on Wednesday for a fresh assessment of the economy and monetary policy.

--With assistance from Kristian Siedenburg, Harumi Ichikura and Catarina Saraiva.

To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Jana Randow

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