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Production fell by 2.4% compared with the previous month, the
federal statistics office said on Friday. Analysts polled by
Reuters had predicted a 0.3% fall.
"Friday’s data is a cold shower for everyone hoping for a speedy
recovery. In fact, it suggests that the bottoming out of
industry still has a long way to go," said Carsten Brzeski,
ING's global head of macro.
The recent weakening of sentiment indicators also suggests that
there will be no rapid turnaround for the better, Commerzbank's
senior economist Ralph Solveen said.
"There is a growing risk that the German economy will continue
to contract slightly in the third quarter," Solveen said.
Production dropped by 8.1% in the automotive industry, weighing
on the overall result. In June, automotive production rose 7.9%.
On a less volatile three month on three month comparison,
production in May-July fell 2.7% compared with the
February-April period.
"Weakness in German industry is one of the main reasons why we
expect the German economy will broadly stagnate in the rest of
this year," said Franziska Palmas, senior Europe economist at
Capital Economics.
The statistics office revised the figure for June to a 1.7%
increase on the month from 1.4% previously.
Despite the upward revision, the slide in July more than
reversed June’s increase.
"Industrial production is unlikely to come out of recession
unless the external picture improves," said Melanie Debono,
senior Europe economist at Pantheon Macroeconomics. "The sharp
drop in the trade surplus in July, the second in a row, does not
suggest this is happening."
The foreign trade balance showed a surplus of 16.8 billion euros
in July, down from 20.4 billion euros in June.
German exports rose by 1.7% in July compared with the previous
month, while imports rose by 5.4% on the month.
"The trends in manufacturing, imports and exports still look
recessionary, highlighting the risk that the economy is now
falling into a technical recession," Debono said.
The German economy contracted in the second quarter, sparking
fears of another recession, marked by two consecutive quarters
of contraction.
(Reporting by Maria Martinez, Anastasiia Kozlova and Halilcan
Soran, editing by Andrey Sychev, Christina Fincher and Hugh
Lawson)
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