German Industrial Output Falls Unexpectedly In July

Germany's industrial production declined unexpectedly in July, adding fuel to worries that the biggest euro area economy entered a recession in the third quarter, data from Destatis revealed Friday.

Industrial production fell 0.6 percent in July from June, confounding expectations for an increase of 0.3 percent. Nonetheless, the pace of decline slowed from the 1.1 percent fall in June.

On a yearly basis, industrial production was down 4.2 percent versus June's 4.7 percent decrease.

The economy ministry said the industrial sector remains weak.

Given the weak start to the second half of the year and the lack of recovery in incoming orders, there are still no signs of improvement in the industrial economy, the ministry noted.

Data released on Thursday showed that factory orders decreased the most in five months in July, largely due to a marked contraction in foreign demand.

At least in the short run, the prospects for German industry remain bleak, ING Economist Carsten Brzeski said. Even with a magnifying glass, it is impossible to find signals of an imminent rebound. Disappointing industrial production data adds to the case for policy action, he added.

Two consecutive quarters of GDP contraction implies a technical recession.

The German economy is on the verge of a recession as it contracted 0.1 percent in the second quarter due to weak foreign demand, and there are signs that the shrinking continued into the third quarter, strengthening calls for stimulus.

Destatis reported that excluding energy and construction, industrial production fell 0.8 percent monthly in July. Energy production dropped 1.3 percent, while construction output grew 0.2 percent.

Within industry, the production of intermediate goods decreased by 0.7 percent and that of capital goods by 1.2 percent. Meanwhile, consumer goods output grew 0.6 percent.

Another report from Destatis showed that labor cost advanced 0.8 percent sequentially, taking the annual growth to 3.2 percent in the second quarter.

Labor costs consist of gross earnings and non-wage costs. In calendar adjusted terms, the gross earnings rose by 3.2 percent year-on-year and non-wage costs were up 3.3 percent.