* Strongest rise since January allays growth concerns
* Govt to present updated growth forecast later on Friday
* Economists says investments are needed to drive growth
(Adds analysts, background)
BERLIN, Oct 7 German industrial production rose
more than expected in August, posting its biggest increase since
January and signalling that the sector will contribute to growth
in the third quarter.
Industrial output rose by 2.5 percent on the month, data
from the Economy Ministry showed on Friday, ahead of the
consensus forecast in a Reuters poll for an increase of 0.8
It posted its biggest monthly increase since January, when
output rose by 2.8 percent. This is likely to further ease
growth concerns after weak data in July, when industrial
production fell by 1.5 percent.
"All in all the results indicate a presumably restrained
increase of production in the industry sector in the third
quarter," the Economy Ministry said in a statement.
Construction was the only sector to post a drop, falling by
1.2 percent. A 3.3 percent in manufacturing output more than
compensated for the fall in construction, the data showed.
ING Bank chief economist Carsten Brzeski said the strong
rebound indicated that the initial shock caused by Britain's
vote in June to leave the European Union had been digested,
adding that in the coming months production would remain stable.
Concerns about a slowdown were eased on Thursday after the
Economy Ministry reported a bigger-than-expected rise in
industrial orders, suggesting that factories will provide
CONSUMPTION TO SLOW
Still, economists expect the construction sector and private
consumption to remain the main growth drivers this year, fuelled
by increased state spending on refugees, record-high employment
and low interest rates.
"Going into 2017, however, weaker real wage growth and the
dropping inflow of refugees should weigh on consumption growth,"
Economists say the government should boost investments on
high-techonology infrastructure and education, give incentives
for more corporate investments, and facilitate financing for
start-ups and venture capital to ensure long-term growth.
One year before a federal election next year, German
Chancellor Angela Merkel's conservatives and their Social
Democrat junior coalition partners have taken differing
positions on the economy.
Merkel on Thursday promised voters tax relief of 6 billion
euros and defended her government's goal of keeping the budget
"This clearly has the flavour of an election present.
However, before anyone gets carried away by the idea of
big-scale fiscal stimulus in Germany, the announced tax relief
should amount to only 6 billion euros, spread over two years.
Less than 0.1 percent of GDP per year," Brzeski said.
Economy Minister Sigmar Gabriel, leader of the Social
Democrats said on Thursday that it made more sense for Germany
to invest in its future rather than spend the budget surplus on
tax cuts, a subtle criticism of Merkel.
Gabriel will later on Friday present the government's
updated growth forecast for 2016 and 2017. It earlier predicted
a 1.7 percent expansion this year and 1.5 percent next year.
(Additional reporting by Caroline Copley)