German exports rise but production falls

8th August 2006, Comments 0 comments

8 August 2006, BERLIN - Despite a rise in German exports, data released Tuesday showing an unexpected 0.4 per cent June slump in industrial production underscored the risks facing Europe's biggest economy. The drop in output followed a surprise fall in industrial orders. Data released Friday had shown factory orders shrinking by 0.5 per cent in June to record their second consecutive monthly fall. Analysts had expected both industrial production and orders to expand during June. The release of the latest b

8 August 2006

BERLIN - Despite a rise in German exports, data released Tuesday showing an unexpected 0.4 per cent June slump in industrial production underscored the risks facing Europe's biggest economy.

The drop in output followed a surprise fall in industrial orders. Data released Friday had shown factory orders shrinking by 0.5 per cent in June to record their second consecutive monthly fall.

Analysts had expected both industrial production and orders to expand during June.

The release of the latest batch of key German economic data came as concerns have grown about the threat posed to global growth by surging oil prices, rising interest rates and a slower US economy.

Also helping to fuel worries about German economic outlook, two key economic sentiment surveys fell last month with the nation's closely watched business confidence survey dropping back from a 15- year high.

But despite the less-than-sparkling set of German data, economists remained relatively upbeat about the economic performance that the nation is likely to turn in this year.

"On the whole Germany looks well underpinned for the second half of the year," said Klaus Baader chief European economist with the US investment house Merrill Lynch.

He described the fall in June industrial production as "a small correction" after the strong 1.5 per cent rise in May.

"Going forward, we expect a rebound in industrial production in July and beyond," said Elga Bartsch, European economist with Morgan Stanley.

Tuesday's release of the output data coincided with figures from the statistics office pointing to a robust performance by the nation's export machine which served to again underscore Germany's role as the world's leading exporter.

The trade data showed German exports rising by a bigger-than- forecast 1.5 per cent in June after dropping 1.6 per cent in May.

Imports grew by 3.5 per cent. This lead to the nation's trade surplus falling to 11.9 billion euros compared to 12.9 billion euros in May.

Economists had expected both exports and imports to rise by one per cent in June with the jump in imports reflecting the pickup in oil prices.

The data also showed German exports racing ahead by about 13 per cent during the first half of the year compared to the same period in 2005 with export orders growing especially strongly from non-European Union nations.

Moreover, economists also expect German second-quarter growth figures to be released Monday to reinforce the picture of a strong economic expansion in the last three months. This is likely to help to fuel expectations of further rate hikes in Europe.

Analysts are putting their final touches on their forecasts for the second-quarter growth data with some expecting the nation to chalk up a hefty quarter-on-quarter growth rate of up to 0.8 per cent.

This would translate into a year-on-year growth rate of just short of a solid two per cent during the second quarter.

It would follow a 0.4 per cent increase in the first three months of the year. The German economy grew by 1.4 per cent during the first quarter of the year.

In addition, cautious optimism has emerged about the prospects for Germany's hard-pressed retail sector with recent figures showing retail sales bounding ahead in June and unemployment falling posting a bigger-than-forecast drop in July.

German private consumption is projected to edge up again in the coming months as consumers splash out on big ticket items in a bid to beat the government's planned three percentage points in value-added tax which is due to come into force in January.

That said however, the real challenges facing the German economy are likely to be in the first half of next year when private consumption is expected to slump after the VAT rise is introduced and the government moves to cut back spending.

Both steps form part of a bid by Berlin to ensure the country's deficit is in line with the strict fiscal targets for euro member states.

In a sense, both moves help to highlight the risks facing the German economy.

Apart from the threat posed to growth by high oil prices, the push to toughen up on government spending and increase VAT could coincide with a slow down in the world's biggest economy, the US.

At the same time, this could undercut the dollar against the euro, which in turn might hit exports just as domestic demand in Germany was starting to slip back a gear.

DPA

Subject: German news

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