German Industrial Output Fell in July After June Gain

By Gabi Thesing

Sept. 8 (Bloomberg) -- German industrial output fell in July after rising in June, suggesting the recovery from recession may be gradual.

Production declined 0.9 percent from June, when it rose a revised 0.8 percent, the Economy Ministry in Berlin said today. It had initially reported a 0.1 percent decline in June output. Economists predicted an increase of 1.6 percent in July, the median of 39 forecasts in a Bloomberg survey showed. From a year earlier, production declined 17 percent when adjusted for the number of work days.

Germany unexpectedly pulled out of its worst recession since World War II in the second quarter and some data suggest the pace of expansion may accelerate. Exports and factory orders rose in July and business confidence increased for a fifth month in August. With unemployment rising and some government stimulus measures starting to expire, policy makers including European Central Bank President Jean-Claude Trichet have warned that the economic pickup may be uneven.

“The recovery is bumpy and strong order and confidence numbers don’t immediately translate into production,” said James Ashley, an economist at Barclays Capital in London. “Next month should be much better and we expect sound growth in the third and fourth quarters.”

July’s output decline was driven by a 3.2 percent drop in investment goods production and 3.9 percent slide in energy output, the ministry said. Construction fell 2.3 percent. Intermediate goods output gained 1.8 percent and production of durable goods such as household appliances rose 1.2 percent.

Exports, Orders

German exports gained 2.3 in July and factory orders advanced 3.5 percent. Given the increase in orders, “industrial production is likely to increase in the third quarter,” the ministry said.

K+S AG, Europe’s biggest potash producer, on Sept. 1 predicted a 50 percent jump in potash sales next year as global demand for the crop nutrient rebounds from this year’s slump.

Governments worldwide have announced about $2 trillion in economic stimulus programs to help rekindle economic growth.

Measures introduced by German Chancellor Angela Merkel’s government, which faces a national election on Sept. 27, include infrastructure spending and a 2,500-euro payment to people who trade in their old car and buy a new one. The “cash-for- clunkers” fund ran dry last week.

Rising Unemployment

While Bundesbank President Axel Weber last week predicted the third quarter “will again signal a strong pick-up,” boosted by the car-scrappage program, he said a stronger global recovery is needed for Germany to overcome all its economic weaknesses.

The Bundesbank expects unemployment to rise to 10.5 percent in 2010 from 8.3 percent today as companies cut costs to restore profit. That may damp consumer spending and undermine the recovery.

Still, “with gradually filling order books, chances are increasing that the future worsening of the labor market will be limited,” said Carsten Brzeski, an economist at ING Groep in Brussels.

Germany’s government has indicated its forecast for a 6 percent economic contraction this year may now be too pessimistic.

The Organization for Economic Cooperation and Development last week cut its estimate for the recession in the world’s leading industrialized economies, and a senior International Monetary Fund economist said the lender plans to adjust its global growth forecast for 2010 to “just below” 3 percent from a July prediction of 2.5 percent.

To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net