German industrial production unexpectedly declined in August, signalling that Europe’s largest economy is vulnerable to risks including weaker growth in emerging markets.
Output, adjusted for seasonal swings and inflation, fell 1.2% in August after a revised increase of 1.2% in July, data from the Economy Ministry in Berlin showed yesterday.
The reading, which tends to be volatile, compares with a median estimate for a 0.2% gain in a Bloomberg survey of economists. In Spain, industrial production slumped 1.4%, marking the biggest decline in more than two years.
Germany is grappling with a slowdown in China and other emerging markets, which have been key destinations for its exports. With factory orders from countries outside the 19-nation euro region down more than 13% in July and August combined, the focus is shifting to strengthening domestic spending fuelled by pent-up investment demand and consumption.
“Over the last couple of months, the industrial safety net of low inventories and filled order books has become thinner,” said Carsten Brzeski, chief economist at ING-Diba in Frankfurt.
“Somehow, the weak euro and extremely favourable financing conditions have not fully deployed their full impact on the economy, yet.”
The single currency was little changed after the report and traded at $1.1265 at 8:15 a.m. Frankfurt time. It’s depreciated by more than 11% in the past year.
On Monday, Hamburger Hafen und Logistik, the handler of about three in four containers at Hamburg’s port, cut its 2015 earnings forecast on declining container volume. The Federal Statistics Office will release August trade data today.
Manufacturing output fell 1.1% in August amid a 2.1% decline in investment-goods production, according to the report. Construction and energy output also decreased. The drop in production can mostly be attributed to the timing of school holidays, the Economy Ministry said, adding that business confidence will support a moderately positive trend in manufacturing. Industrial production advanced 2.3% from a year earlier.
In Spain, output fell in August at the fastest pace since April 2013, the National Statistics Institute said yesterday. The euro area’s fourth-largest economy may have lost momentum in the third quarter, according to the Bank of Spain.
The Madrid-based institution estimates growth slowed to 0.8% from 1% in the previous period.
German production in the coming months may suffer from Volkswagen’s cheating on emissions tests. News of the scandal broke last month and isn’t reflected in yesterday’s report.
At the same time, gradually rising investment in the euro area should bolster German industry. Economic growth in the region will accelerate to 0.5% this quarter from 0.4% in the previous period, according to updated forecasts by Germany’s Ifo institute, France’s national statistics office Insee and Italy’s statistics agency Istat published on Tuesday.
Further extraordinary stimulus by the European Central Bank could also prove a boon if it pushes down the euro, making German products more competitive.
The Frankfurt-based central bank will publish the account of its most-recent policy meeting on today.
It will be closely scrutinised by investors for hints on whether quantitative easing could be amended.
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