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German, French Industrial Production Disappoints in March

Production drops in France and again in Germany, 0.3% and 1.3%, respectively, with output also down 2.4% in the Netherlands. Small disappointment? Or first signs of something bigger?

Industrial production in the euro area’s three biggest economies disappointed in March — possibly signaling slackening demand in Europe.

German production, adjusted for seasonal swings, fell 1.3%, its second consecutive decline and exceeding a 0.2% drop predicted by economists in a Bloomberg survey. In France, output unexpectedly fell 0.3%, and Italy saw production stagnate in March after a drop in February. Output also dropped 2.4% in the Netherlands.

The reports suggest growth in the euro area might have started to lose some momentum toward the end of the quarter, when the economy expanded at its fastest pace in a year. An initial estimate put expansion in the January-March period at 0.6%, and a second reading will be published on Friday

“It’s a small disappointment only,” said Frederik Ducrozet, senior economist at Banque Pictet & Cie SA in Geneva. While it’s a setback from strong growth at the start of the year, that “slowdown is discounted already and not big enough to challenge the view that underlying momentum remains healthy.”

In France, manufacturing fell 0.9%, compared to a forecast for a 0.6% increase. Separately, a Bank of France business sentiment index was unchanged in April. Barclays said industry is set to drag on growth in the euro region’s second-largest economy and it might have expanded less than initially estimated in the first quarter.

Germany’s output was dragged lower by a 3.2% drop in construction and a 1.2% decline in manufacturing. Output of investment goods fell 1.4%.

Slowing global growth has led the German economy to rely increasingly on domestic demand, bolstered by record-low unemployment. Yet business confidence deteriorated last month and the Bundesbank said that it expects slowing momentum in the second quarter amid global headwinds.

Still, factory orders on Monday signaled that industrial output should pick up in coming months. Orders jumped 1.9% in March, more than economists had forecast.

“Overall, the German economy appears to have made a strong start to the year, putting the risks to our forecast of 1.2% annual growth to the upside,” Jennifer McKeown, senior European economist at Capital Economics in London said in a note. “But we still see growth slowing as the year goes on.”

By Piotr Skolimowski and Maria Tadeo

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