Germany’s industrial production declined at the fastest pace in 12 months in August, defying expectations for a modest increase, suggesting that economic growth slowed in the third quarter and that the manufacturing sector is set to struggle in coming months mainly due to weaker demand from emerging markets, especially China.
Industrial production declined 1.2 percent from July, when it rose 1.2 percent, which was revised from 0.7 percent, Destatis said Wednesday. Economists had forecast production growth to ease to 0.2 percent.
The latest decline was the biggest since August last year, when production decreased 2.7 percent. The economy ministry attributed the fall largely to the unusually late timing of the holidays. Production rose 2.3 percent from a year ago.
Increased confidence in the manufacturing sector and the good export performance point to a continuation of the moderate positive industrial activity despite weak orders in both July and August, the ministry said.
Official data, however, revealed that factory orders dropped unexpectedly for a second straight month in August, down 1.8 percent. A sharp drop in non-EU bookings was revealed, which suggested that exports are likely to be weak in coming months.
Economists also caution that a prolonged slowdown in China and the Volkswagen emissions scandal could hurt German exports, which was the economy’s growth driver in the second quarter.
Excluding energy and construction, production in industry decreased 1.1 percent in August. Within industry, the production of capital goods fell 2.1 percent and that of consumer goods by 0.4 percent.
Production of intermediate goods was unchanged from the previous month. Meanwhile, energy production and construction output fell 1.4 percent and by 1.3 percent, respectively.
“Over the last couple of months, the industrial safety net of low inventories and filled order books has become thinner,” ING Bank economist Carsten Brzeski said.
“Somehow, the weak euro and extremely favorable financing conditions have not fully deployed their full impact on the economy, yet.”
In its latest set of forecasts, released on Tuesday, the International Monetary Fund trimmed Germany’s growth projection for this year to 1.5 percent and the outlook for next year to 1.6 percent.
Private sector manufacturing activity growth eased in September, despite robust new order and employment gains, a survey from Markit Economics showed last week.
Elsewhere in the euro area on Wednesday, figures from the Spanish statistical office INE showed that industrial production declined for the first time in nine months in August, down 1.4 percent from July.
Meanwhile, a combined projection by the Ifo Institute, France’s INSEE and Italy’s ISTAT, published Tuesday, showed that Eurozone economic growth is set to accelerate slightly in the final three months of this year to 0.5 percent from an estimated 0.4 percent in the third quarter. The three agencies predicted 1.6 percent growth for this year.
The material has been provided by InstaForex Company – www.instaforex.com