Blow for German Economy as Industrial Output Drops

Manufacturing output down by 2.7%.

German industrial output fell in December, in line with an expected downturn in Europe's biggest economy at the end of last year, data showed on Feb. 7 but analysts expect a quick rebound.

The economy ministry calculated that German industrial production dropped by a bigger-than-expected 2.9% month-on-month in December after stagnating in November.

Activity was down across all industrial sectors, with manufacturing output down by 2.7%, energy output declining by 2.2% and construction output dropping as much as 6.4%, the ministry said.

That meant that for the fourth quarter of 2011 as a whole, overall industrial output shrank by 1.9%.

However, while the outlook for industrial output "remains subdued for now... a stabilization in industrial orders and rising sentiment indicators offer the first signs that the current period of weakness is over," the ministry predicted.

The day before, ministry data showed an unexpected rise in German industrial orders in Germany in December, partly reversing steep falls seen the previous month.

The latest numbers "confirm the slowdown of the German economy," said ING Belgium senior economist Carsten Brzeski. "However, it is neither a crash landing nor a belly flop, but only a breather. Even if the numbers look bad, this should have been as bad as it gets for the German economy," he said.

Looking ahead, there were several factors pointing towards a quick rebound of the German economy, the economist said. The increase in new orders, for example, "shows that there is still sufficient lube oil for Germany's economic engine. In fact, December was the first month since the summer in which inventories were reduced and orders at hand increased, a combination which bodes well for industrial production in the coming months," Brzeski said.

However, the current very cold winter weather could at least temporarily spoil or delay a rebound, he cautioned.

Chris Williamson at Markit also said the output data "add to evidence that the German economy probably contracted in the final quarter of 2011."

However, "we should not get too gloomy about these numbers, as they merely confirm what we already knew -- that the German economy slid back into contraction in the fourth quarter," he said. "More importantly, if we look beyond December there are growing signs that Germany will avoid a dip back into recession, defined as two consecutive quarters of economic decline."

Jennifer McKeown at Capital Economics also believed that Germany "could avoid a technical recession for now."

Nevertheless, "as the industrial downturn continues and households remain in cautious mode amid a deepening crisis elsewhere in the eurozone, we see the German economy stagnating this year. What's more, worse might well be to come in 2013," she warned.

Copyright Agence France-Presse, 2012

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