Germany sees surprise dive in industrial output

Volkswagen's assembly plant in Wolfsburg in northern Germany. There are worries that the country's economy is losing steam as exports suffer from lower demand in emerging markets and concern grows about Britain's decision to leave the European Union.
Volkswagen's assembly plant in Wolfsburg in northern Germany. There are worries that the country's economy is losing steam as exports suffer from lower demand in emerging markets and concern grows about Britain's decision to leave the European Union. PHOTO: AGENCE FRANCE-PRESSE

1.5% drop in July raises fears of slowdown in major EU economy

BERLIN • German industrial production fell the most in 23 months in July, data showed yesterday, another sign that Europe's largest economy is set for a slowdown.

Yesterday's data, published one day after a surprisingly weak rise in industrial orders, added to worries that the German economy is losing steam as exports suffer from lower demand in emerging markets and concern grows about Britain's decision to leave the European Union.

"Companies in the industry sector continue to adopt a wait- and-see approach because of sluggishness in the global export markets," the Economy Ministry said.

Industrial output fell by 1.5 per cent in July from June, the data showed, far below economists consensus. Construction's 1.8 per cent increase in output and energy's 2.6 per cent surge were not enough to offset a 2.3 per cent drop in manufacturing activity, the data showed.

In the less volatile two-month comparison, industrial output was nearly flat, falling 0.1 per cent in June and July.

  • Aussie economy still growing

  • SYDNEY • Australia's resource-rich economy expanded at its fastest annual pace in four years last quarter, clinching a remarkable run of 25 years without recession as surging exports more than made up for a patchy performance at home.

    The Aussie dollar held firm at 76.90 US cents after data showed that gross domestic product (GDP) rose 3.3 per cent in the year to June, up from around 2.9 per cent the previous quarter. The value of all goods and services rose 0.5 per cent compared to the first quarter, when output climbed by an unusually strong 1 per cent.

    Growth in the quarter was bolstered by a pre-election spurt in government spending, combined with modest gains in household spending and home building. That helped offset another steep decline in mining investment, which has been dragging on the economy for more than three years now.

    For the year as a whole, international trade was the biggest prop to growth as the hundreds of billions spent on mining projects yielded a bounty of resource exports. Trade accounted for no less than 2.2 percentage points of growth in the year to June.

    Overall, the Australian Bureau of Statistics estimated annual GDP was worth A$1.65 trillion (S$1.7 trillion) in current dollars, or around A$68,929 for each of the country's 24 million residents.

    Annual growth was handily ahead of 1.2 per cent in the United States, 1.6 per cent in the European Union, 2.2 per cent in the UK and even outpaced Germany's 3.1 per cent.

    REUTERS

ING economist Carsten Brzeski said no single factor caused the stagnating industrial output.

"The trend already started long before the British referendum, but clearly the Brexit vote should have been one of the main drivers behind the sharp July drop," he said.

"More generally speaking, the German industry seems to suffer from weaker activity in China, struggling euro zone peers and a general shift away from manufacturing towards services."

The government expects the economy to expand by 1.7 per cent this year, comparable with last year, when private consumption and state spending provided most of the impetus. For next year, it forecasts a slowdown to 1.5 per cent as weaker exports hit manufacturers, historically a pillar of the economy.

With private consumption showing signs of slowing, the government is facing louder calls to increase investment on education, infrastructure and high technology.

Critics accuse Chancellor Angela Merkel's government of complacency on the economy. Finance Minister Wolfgang Schaeuble has promised tax cuts for low- and middle-income households after the 2017 election, but has ruled out new debt to finance investments.

The government wants to reduce total public debt in 2020 to less than 60 per cent of gross domestic product for the first time since 2002.

ING's Mr Brzeski said the government should invest more in education and high technology infrastructure, which would act as "instruments to boost long-term growth".

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 08, 2016, with the headline 'Germany sees surprise dive in industrial output'. Print Edition | Subscribe