Germany's industrial production unexpectedly drops in October for second straight month, reports Economy Ministry; seasonally adjusted output down 1.2% from September, defying economists, who had predicted gain of 0.7%

December 9, 2013 () – German industrial production unexpectedly dropped for a second month in October, signaling an uneven recovery in Europe’s largest economy. Output, adjusted for seasonal swings, decreased 1.2 percent from September, when it fell a revised 0.7 percent, the Economy Ministry in Berlin said today. Economists predicted a gain of 0.7 percent, according to the median of 38 estimates in a Bloomberg News survey. Production climbed 1 percent from a year earlier when adjusted for working days.

Germany’s economic growth risks being curbed by weakness in the 17-nation euro area, its biggest trading partner, leaving it more reliant on domestic demand. The country’s factory orders fell more than forecast in October and unemployment rose for a fourth month in November. At the same time, business confidence is at the highest level in more than 1 1/2 years and exports unexpectedly rose in October.

“Today’s hard data are definitely not a good starting point for the fourth quarter and represent a limit for a solid expansion,” said Annalisa Piazza, an economist at Newedge Group in London. “Looking ahead, we expect the picture to improve. German business surveys showed a rapid acceleration in November, all pointing to some gained momentum.”

Durable Goods

German manufacturing output slid 1.1 percent in October, with production of investment goods dropping 3 percent, today’s report showed. Construction shrank 1.7 percent and energy output declined 1.9 percent. Production of consumer items fell 0.8 percent, led by a 4.5 percent slump in durable goods.

The DAX stock index was little changed at 9,183 at 1:08 p.m. Frankfurt time. The euro was little changed at $1.3719.

Germany was the growth driver in the euro area in the third quarter, expanding 0.3 percent as France’s economy, the region’s second-biggest, unexpectedly contracted and Italy extended its longest postwar recession. The European Central Bank last week kept its benchmark rate at a record low of 0.25 percent and predicted the currency bloc’s economy will shrink 0.4 percent this year before expanding 1 percent in 2015.

Germany’s economy is showing some signs of improving this quarter. The Frankfurt-based Bundesbank predicted last week that gross domestic product will increase as much as 0.5 percent this year, up from its previous estimate of 0.3 percent. The Ifo institute’s gauge of business confidence climbed in November to the highest level since April 2012.

Export Gain

The country’s exports rose 0.2 percent in October from the prior month while imports increased 2.9 percent, the Federal Statistics Office in Wiesbaden said today. Economists surveyed by Bloomberg predicted foreign sales would contract. The trade surplus shrank to 17.9 billion euros ($24.6 billion) from 20.3 billion euros.

Even so, a measure of German investors’ confidence in the euro area slid to 8 this month from 9.3 in November, Limburg- based Sentix said in a report today. That’s lower than all the forecasts in a Bloomberg survey. A gauge of expectations climbed to 23.3 from 22.8.

RWE AG, Germany’s second-largest utility, said on Nov. 14 that profit next year will almost halve on the weak outlook for power prices, and that it plans to cut about 10 percent of its jobs.

“With a narrowing trade surplus and dropping industrial production the German economy did not have the overwhelming start to the fourth quarter confidence indicators had suggested,” said Carsten Brzeski, senior economist at ING Groep NV in Brussels. “Still, in our view, the economy should pick up speed again, ending the year on a positive note.”

--With assistance from Kristian Siedenburg in Vienna. Editors: Paul Gordon, Zoe Schneeweiss

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