German industrial production falls unexpectedly

[FRANKFURT] German industrial production unexpectedly declined in March in a sign that Europe's largest economy remains vulnerable to global economic weakness.

Output, adjusted for seasonal swings and inflation, fell 0.5 per cent after stagnating in February, data from the Economy Ministry in Berlin showed on Friday. The typically volatile number compares with a median estimate of a 0.4 per cent gain in a Bloomberg survey. Production rose 0.1 per cent from a year earlier.

Economic developments around the world and the stand-off between Greece and its creditors risk dragging on an accelerating recovery in the euro area, Germany's biggest trading partner, even as the European Central Bank is making large-scale asset purchases. Yet, German business confidence is at a 10-month high and the Bundesbank predicts "quite robust" economic growth for this year.

"The fundamentals look good and German manufacturers should benefit from the weaker euro and the higher growth in neighboring countries," said Johannes Gareis, an economist at Natixis in Frankfurt. "Yet, there are some worries, which include China's economic struggles, the question marks hanging over the state of the US economy and continuing Russian woes." Manufacturing output fell 0.8 per cent in March from the previous month, with investment-goods production down 1.4 per cent, according to the report. Industry output rose 0.5 per cent in the first quarter, the ministry said, bolstered by a 2.3 per cent increase in construction.

"The industrial sector had an overall moderate start to the year," it said in an e-mailed statement. "Especially manufacturing stumbled in the past months. Important sectors for the economy such as engineering and the car industry are currently lacking momentum." A measure of factory activity in Germany and the euro area signaled slowing output in April, according to Markit Economics. At the same time, manufacturers raised prices for the first time in eight months, providing evidence that the foundations of the feeble recovery are strengthening.

Factory orders, a gauge of future output, rose in March after two months of decline, the statistics office said Thursday. While the trend continues to be positive, orders dropped 1.5 per cent in the first quarter amid sluggish export demand, it said.

First-quarter growth data will be released on May 13. Economists forecast an expansion of 0.5 per cent, compared with the 0.7 per cent recorded at the end of last year.

On Tuesday, the European Commission raised its economic outlook for the euro area, with gross domestic product projected to increase 1.5 per cent this year, up from a prediction of 1.3 per cent in February. Germany's economy will continue outpacing the region, expanding 1.9 per cent this year and 2 per cent in 2016, according to the report.

BLOOMBERG