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German Factories Feed Unexpected Rise in Industrial Output

German Industrial Production Unexpectedly Improves in August

(Bloomberg) --

A jump in manufacturing fueled a surprise improvement in German industrial production following two months of decline. While good news, the development will do little to alleviate concerns about intensifying trade tensions and waning business confidence.

Output rose 0.3% from July, despite a big drop in energy, compared with economist estimates for no change. Investment and basic goods production helped, while motor vehicle manufacturing also grew. But the outlook remains uncertain, with production down 4% on the year and shrinking factory orders signaling that no real turning point is in sight.

The euro was up 0.1% to $1.0986 as of 11:25 a.m. Frankfurt time. It’s fallen 2% in the past three months.

The numbers come on the heels of a report Monday that showed factory orders continuing to fall. The malaise has started to spread to other parts of the economy, raising the risk of a recession in Europe’s largest economy. Manufacturing, which accounts for some 23% of output, dropped an annual 4.9% in the second quarter.

German Factories Feed Unexpected Rise in Industrial Output

The industrial-led downturn is dragging on the broader euro area as well, prompting another round of monetary stimulus from the European Central Bank and pleas to the German government to deploy fiscal stimulus.

What Bloomberg’s Economists Say...

“Whether the economy as a whole shrank in 3Q depends on how services have performed. Leading indicators point to further weakness ahead and the damage appears to be spreading to services. The main sources of the malaise -- huge uncertainty over trade and slowing global investment -- are not going away.”

-- Jamie Rush. Read the GERMANY REACT

There’s been little in the way of good news for the region’s manufacturers.

The U.S. is set to levy import duties on billions of dollars of European products starting next week, and Chinese officials have signaled they’re increasingly reluctant to agree to a broad trade deal pursued by President Donald Trump. Meanwhile prospects of a Brexit deal have faded.

“Despite the recent slight revival, industry remains mired in a downturn,” the economy ministry said in a statement Tuesday, pointing to particular troubles in the auto sector. “Weakness in demand persists.”

AugustJuly
Manufacturing0.7%-0.6%
basic goods1.0%-0.5%
investment goods1.1%-0.8%
consumer goods-1.0%-0.1%
Energy-1.7%0.2%
Construction-1.5%0.6%

Germany’s economy has had periods of volatile growth in the past and a technical recession -- two quarters of contraction -- isn’t unique. The risk is that all of the external pressure continues to mount, creating a deeper and more long-lasting slump.

A measure of investor confidence for Germany is at its lowest level in a decade, while German bond yields have fallen far below zero.

Economists predict growth of just 0.5% this year. That would be the weakest full-year expansion since 2013.

--With assistance from Kristian Siedenburg and Harumi Ichikura.

To contact the reporter on this story: Yuko Takeo in Frankfurt at ytakeo2@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Fergal O'Brien

©2019 Bloomberg L.P.