industrial output posts surprise slump in May
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[July 07, 2014] By
BERLIN (Reuters) - Germany's industrial
output fell 1.8 percent on the month in May, its biggest
drop in more than two years, as holiday days ate into
working hours, construction slumped and geopolitics
weighed, casting a shadow on its role as euro zone
The drop was a surprise and sent the euro weaker - the consensus
forecast in a Reuters poll was for industrial output to be
unchanged. The economy ministry also slightly downwardly revised
April data to -0.3 percent from a previous -0.2 percent.
The disappointing data added to mounting signs of a weaker second
quarter in Europe's largest economy, after it enjoyed quarterly
growth of 0.8 percent in the first three months of the year, its
fastest growth rate in three years.
The figures also fanned expectations that the European Central Bank
(ECB) may have to loosen monetary policy further in coming months in
the face of disinflationary pressures and subdued growth.
"After a strong first quarter, industry output weakened over the
last months. Besides the effect of the bridge (holiday) days in May
and weakness in construction, which was to be expected after the
mild winter, geopolitical factors may also have played a part," the
ministry said in a statement.
"However sentiment indicators and general economic conditions
suggests that output will rise again in the rest of the year after a
weaker second quarter," it said.
The ministry did not specify which geopolitical areas were of
concern but economists such as the influential Munich-based Ifo
think-tank say business is worried about the Ukraine crisis and the
impact on oil prices of the insurgency in Iraq.
"The second quarter is gradually turning into a massive
disappointment. So far, May has brought disappointing retail sales,
falling industry orders and now a significant fall in production,"
Dekabank economist Andreas Scheuerle said.
"Even if some of this is down to missing days at work because of the
bridge days, and might be recovered later, there was simply not the
momentum in the second quarter. That said, the general state of the
German economy is not in question. The third quarter should be
strong again," he said.
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The German government forecasts growth of 1.8 percent for the year
as a whole on the back of strong domestic demand and a healthy jobs
market. However, expectations of a disappointing second quarter are
"It is likely that German growth will at best come in flat in the
second quarter, which suggests the other euro countries and the ECB
should not pin their hopes on the German engine of growth for the
time being," Commerzbank economists wrote in a research note.
Output in the construction sector fell 4.9 percent in May, after an
exceptionally mild winter allowed much more building work to take
place in the first months of the year. Output in intermediate goods
slipped 3.0 percent on the quarter.
(Reporting by Alexandra Hudson; Editing by Stephen Brown and Louise
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