German Industrial Output Unexpectedly Drops as Virus Spreads

(Bloomberg) -- German manufacturers unexpectedly cut production, underlining the risks resurgent infections pose for the economic recovery.

Industrial output declined 0.2% in August following three consecutive gains. Economists had predicted an increase of 1.5%.

The Economy Ministry said the weakness was chiefly driven by a drop in auto manufacturing. A separate report on Tuesday showed factory orders improved for a fourth straight month.

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“The rapidly rising Covid-19 infection rate in Europe has prompted fresh measures to combat the virus. This has led us to lower our forecasts for the euro area through winter.”

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The German economy has showed signs of improvement lately, because of its relatively heavy reliance on manufacturing, extensive wage-support programs and fiscal stimulus.

Still, policy makers have warned against complacency. Bundesbank President Jens Weidmann cautioned Monday that the recovery is likely to be protracted for some time because economic life remains constrained by the pandemic.

His institution expects the economy to continue to improve during the rest of the year, albeit at a slower pace, and has argued in favor of continued fiscal support.

Much of the rest of the euro area is under even more pressure. Southern countries reliant on tourism are suffering from new curbs imposed to contain the coronavirus.

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