May 8, 2019 / 9:02 AM / 4 months ago

Outlook for German industry still weak after surprise March output rise

BERLIN (Reuters) - German industrial output unexpectedly increased in March, helped by more construction and consumer goods production, but the economy ministry warned the outlook remained subdued as Europe’s biggest economy suffered from trade frictions and Brexit nerves.

A steel worker from Germany's industrial conglomerate ThyssenKrupp AG takes a sample of raw iron from a blast furnace at Germany's largest steel factory in Duisburg, Germany, January 28, 2019. REUTERS/Wolfgang Rattay/Files

Industrial output increased by 0.5 percent for the month, exceeding a forecast for a 0.5 percent fall, data released by the Statistics Office and ministry showed on Wednesday.

“The business climate in the manufacturing sector became dimmer. Therefore a subdued industrial situation in the coming months is still to be expected,” said the economy ministry.

Data on Tuesday showed German industrial orders rose less than expected in March after two months of steep declines.

U.S. President Donald Trump’s economic and trade policies and uncertainty created by Britain’s leaving the European Union have hit Germany’s export-oriented economy.

Chancellor Angela Merkel’s government has cut its forecasts for 2019 growth to 0.5 percent, following expansion of 2.2 percent in 2017 and 1.4 percent last year.

The slowdown is affecting the euro zone, where the European Commission has forecast the economy will grow 1.2 percent this year, less than the 1.3 percent estimated in February. However, it expects a recovery to 1.5 percent next year.

Slower growth is also curtailing Germany’s tax intake and budget surplus. Finance Minister Olaf Scholz is expected to cut estimates for this year’s tax revenues on Thursday, and the newspaper Bild reported that would contribute to a cumulative shortfall of 100 billion euros in Germany’s budget by 2023.

“In the end, the German economy is still at the mercy of global economic developments. The reliance on foreign demand is a burden in a climate of trade conflicts and isolationist tendencies,” said Thomas Gitzel, chief economist at VP Bank.

The data showed production of consumer goods rose 1.1 percent and output of intermediate goods grew 0.4 percent in March. Output of capital goods was flat.

Some economists said the data was not as good as it appeared. A strong increase in construction in February had bolstered first-quarter industrial production, they said.

Construction increased 1.0 percent following a 4.0 percent rise in February, helped by good weather, the ministry said.

“Weak business surveys for April suggest that the German manufacturing sector is not yet out of the woods,” said Andrew Kenningham, chief Europe economist at Capital Economics, adding manufacturing output may have dropped at the start of the second quarter.

February’s reading was revised down to an increase of 0.4 percent from a previously reported 0.7 percent rise.

Reporting by Madeline Chambers; editing by Michelle Martin, Larry King

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