German industry slump sparks renewed growth fears

by Reuters
Friday, 6 December 2019 08:07 GMT

* Output drops 1.7% m/m vs forecast 0.1% rise

* Capital goods output sees biggest drop since 2014

* Slump prompts worry about Q4 GDP figures

* Germany only narrowly escaped mid-year recession (Recasts with detail, background, economist comment)

BERLIN, Dec 6 (Reuters) - Germany's industrial output unexpectedly dropped in October, reviving worries about its economic growth outlook as its manufacturing backbone is hurt by global trade conflicts and disruption in the auto sector.

Industrial output dropped 1.7% on the month against expectations for a 0.1% rise, Statistics Office figures showed on Friday. Production of capital goods slumped by 4.4% on the month, the steepest decline in more than five years.

Europe's biggest economy is going through a soft patch as its export-oriented manufacturers struggle against a backdrop of trade friction, an ailing car industry and uncertainties over Britain's planned departure from the European Union.

"Now the trepidation starts again about GDP growth in the final quarter," said Jens-Oliver Niklasch, economist at Landesbank Baden-Wuerttemberg.

In its 10th successive year of growth, the economy has been relying on strong consumption as exports weaken, which resulted in a second-quarter GDP contraction of 0.2%.

The economy grew by just 0.1% in the third quarter, narrowly avoiding recession, which economists usually define as two consecutive quarters of negative growth.

"Trade conflicts, global uncertainty and disruption in the automotive industry have put the entire German industry in a headlock, from which it is hard to escape," said Carsten Brzeski, economist at ING.

Many economists have been urging the government to ditch its policy of incurring no new net debt, saying it should instead borrow to finance a stimulus package.

The government seems to be betting instead on an easing of trade frictions between the United States and both China and the EU to revive Germany's manufacturing sector.

"The economic weakness in industry remains" the ministry said in a statement. "However, the latest developments in new orders and business expectations indicate that a stabilising trend could emerge in the coming months."

German business morale rose in November, the Ifo economic institute said late last month. (Reporting by Paul Carrel and Rene Wagner, editing by Riham Alkousaa and John Stonestreet)

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