• Home
• /
• Business

German industrial output falls sharply in May

BERLIN - German industrial production dropped by 2.4 percent in May from the previous month, owing in part to long weekends, figures released Monday by the economy ministry showed.

The result for Europe's largest economy nonetheless surprised anyalsts polled by Dow Jones Newswires who had forecast an increase of 0.5 percent.

"Hard economic facts are now telling us what leading indicators have been signalling for some time: the German economy will not get away from slowing growth elsewhere," commented Martin Lueck at UBS.

According to the economy ministry, which published a provisional, seasonally-adjusted figure, two long weekends were responsible for much of the substantial decrease.

"But even the work-day adjusted annual rate dropped to a three-year low of 0.8 percent -- a far cry from the peak of over 8.0 percent reached earlier this year," commented Jennifer McKeown at Capital Economics.

The ministry also revised its figure for April, which showed that industrial output had decreased by 0.2 percent that month, better than the initial estimate of a 0.5 percent drop.

A two-month calculation used to smooth out exceptional events showed that production in April and May was 1.8 percent lower than in February and March.

A breakdown by sector revealed a monthly decrease of 3.9 percent in the capital goods industry, where German companies until now have withstood weaker growth elsewhere by providing machines needed to produce finished products.

"The capital goods sector is now struggling, due to tightened credit standards, higher labour costs and the slow down of the global economy," said Costa Brunner at Natixis bank.

On Friday, provisional data indicated that industrial orders had fallen by 0.9 percent in May, marking the sixth drop in a row and suggesting that output would decrease in turn in the months to come.

"Six consecutive declines in new orders clearly underscore the weakening fundamentals for the German industrial sector," said economist Alexander Koch at UniCredit Markets on Monday.

Lueck at UBS added: "Like industrial output, order intake has now virtually stalled from very healthy growth only a couple of months back."

BNP Parisbas economist Frederique Cerisier said: "After three consecutive declines in production ... a contraction over the whole quarter cannot be avoided now, and it should be substantial."

Second quarter economic growth figures due on July 14 are expected to show that the German economy grew at a much slower pace than in the first quarter.

Cerisier forecast a quarterly contraction, while McKeown said the output data "clearly adds to the evidence that German GDP (gross domestic product) growth will slow sharply from the first quarter's sharp 1.5 percent gain - an outright fall seems increasingly likely."