German export motor powers up, industry steps on brakes

8th November 2010, Comments 0 comments

Germany sent contradictory signals on its rapid economic recovery on Monday, with data showing a strong rally by the powerful "made in Germany" export machine, but a shock setback for industry.

Nevertheless, despite a surprise decline in industrial output on the month, most analysts, along with the economy ministry and the Organisation for Economic Cooperation and Development (OECD), continued to see a relatively bright future for Europe's top economy.

According to official data, sales abroad of German goods rose three percent on the month to 84.3 billion euros (117.4 billion dollars) but industrial output dropped 0.8 percent while analysts had expected a gain of 0.5 percent.

And the industrial production data followed a steep decline in industrial orders, which economists view as a good indicator for future economic trends.

Orders plunged by a month-on-month four percent in September, the sharpest fall since January 2009, data published on Friday showed, raising concerns for Germany and the wider eurozone economy.

Nevertheless, the German economy ministry said prospects continued to be bright for industry as Europe's top economy powers out of last year's recession, the sharpest in six decades.

"Industrial production is still trending upwards. In the third quarter, output could again rise above the level of the second quarter, when we saw strong growth," the ministry said in a statement.

And Alexander Koch, from Unicredit, agreed, saying: "Looking into the final quarter and also the beginning of next year, a further massive loss in industrial dynamic doesn't appear to be on the cards."

"German industry will continue its upward trend," forecast Thilo Heidrich from Postbank. "In the coming months, we will have a positive performance."

Also on Monday, the OECD singled out Germany as a European economy heading for expansion, while continental rivals Britain, France and Italy were heading in the opposite direction.

Germany, the world's second-biggest exporter after China, was hit especially hard by the global economic slowdown, as demand for its goods dried up around the world.

But as customers began to recover, Germany has bounced back strongly, with Berlin predicting healthy growth of 3.4 percent this year, following a crippling contraction of 4.7 percent in 2009.

However, not all analysts were so bullish on Germany. Jennifer McKeown from Capital Economics pointed to weaker global growth and a rising euro exchange rate as factors that could act as a drag.

"There are several reasons to think that this month's fall in industrial activity might be the start of a slowing trend," said the economist.

"The sector is reliant on global growth, which is already slowing, and demand for German goods will suffer from the euro's strength."

Carsten Brzeski, an economist with ING, said: "After the strong second quarter, the German economy has clearly shifted into a lower gear without stalling the engine."

© 2010 AFP

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