German factory output bounces back but sector still weak
German factory output rose unexpectedly in August, suggesting that the expected recession in Europe’s biggest economy in the third quarter may not be as deep as some fear.
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Industrial output increased 0.3 per cent, up from an upwardly revised fall of 0.4 per cent in July and well above economists’ expectations of a 0.3 per cent fall.
However, industrial production over the year to August fell four per cent, down from a 3.9 per cent drop in the year to July and below expectations of a fall of 2.7 per cent.
The yearly drop means the German economy is still expected to contract in the third quarter after shrinking by 0.1 per cent in the second.
Europe’s biggest economy, and in particular its factories, have been hit hard by the global slowdown driven by the US-China trade war as well as Brexit and weaker demand from China.
“The 0.3 per cent increase in German industrial production comes a relief, and a bit of a surprise,” said Andrew Kenningham, chief Europe economist at Capital Economics.
German’s economic ministry said the production of intermediate goods – which are used in the creation of other goods – increased by one per cent in August. The production of capital goods such as machinery rose 1.1 per cent.
However, the production of consumer goods fell one per cent. This may worry policymakers as domestic demand has been propping up the German economy.
Kenningham said he doubted August’s performance marked a turning point, however. “It is likely that industrial production will have fallen in the third quarter as a whole,” he said.
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“Even if output were unchanged in September, this would leave production down by nearly one per cent quarter on quarter, enough to subtract 0.2 percentage points from GDP and a fifth successive quarterly decline.”
(Image credit: Getty)