German Industrial Output Drop in September Seen Short-Lived

Industrial output in Germany declined more than expected in September but analysts said it was likely a short-term breather as surveys point to acceleration in the months ahead.

Industrial output decreased by 1.6% in September from August, adjusted to seasonal swings and calendar effects, the economic ministry said. Economists in a survey by The Wall Street Journal forecast a month-on-month fall of 0.8%. This decline shaved off some of the 2.6% gain posted in August.

The underlying trend “still points clearly up,” said Ralph Solveen, economist at Commerzbank. He said the September drop must be considered against the backdrop of the strong gain of August, which benefited from a special effect in the auto sector, namely that plant holidays this year fell in July rather than in August.

The bigger-than-expected drop in September together with weak retail sales data for the third quarter point to a possible slowdown in GDP in the third quarter, said Jennifer McKeown, chief European economist at Capital Economics.

But given the fact that “monthly data are not a fully reliable guide,” she still expects a 0.6% GDP expansion in the third quarter, the same pace as in the second quarter. She added that the manufacturing index of the Ifo survey points to renewed acceleration in output growth.

Michal Dybula, economist at BNP Paribas, however, said that softer German industrial output “might persist for a couple of months,” reflecting a correction to summer volatility and some weakness in Central European leading indicators, which he said have been a good proxy to German industrial data for years.

That said, the European Central Bank’s ongoing loose monetary policy and a robust global economic outlook “are consistent with renewed German industrial strength heading into 2018,” he added.

Tuesday’s weaker-than-expected figures came a day after manufacturing orders data for the same reporting month showed a surprising rise, pointing to resilient growth pace in Europe’s largest economy.

Despite the decline in September, industrial output remains lively, the ministry said, expecting production to continue to expand in the coming months.
Source: Dow Jones

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