German Industrial Output Slumps

FRANKFURT—German industrial output slumped in August, in yet another sign that slower growth in China and recessions in other key developing countries are starting to dent Europe's powerhouse.

Just one day after the economics ministry revealed a steep fall in manufacturing orders, the ministry said Wednesday that industrial production in August dropped 1.2% on the month, pushing the overall output volume back to its June level.

"The slowdown in global activity is clearly affecting the German economy," said Rainer Sartoris, an economist at HSBC in Dü sseldorf.

In a sign of the slide, German steel distributor Kloeckner & Co. on Tuesday said it would not meet its third-quarter profit target, citing price declines and weak demand for steel and metal products.

"Chinese steel is pushing on the market, pressuring prices in Europe and the U.S.," said Christian Pokropp, a spokesman at Kloeckner & Co. in Duisburg. "China has long had huge overcapacities, but import-pressures have accelerated in recent weeks and months, and falling prices are weighing on margins," he said.

The lower earnings guidance came just a day after port logistics group Hamburger Hafen und Logistik AG lowered its target for the year owing to "persistently weak and continually declining" volumes in its container segment. The country's biggest port is struggling to cope with slower growth in China and a collapse in its business with Russia.

"We don't expect a dramatic fall in industrial activity just yet, but we are aware of the downside risks arising from both weaker global trade and the auto sector, following the recent emissions scandal at Volkswagen," Mr. Sartoris said. Europe's largest car maker is expected to face heavy fines after it emerged that it had installed software in some diesel cars that made them perform better in emissions tests than they would on the road.

Economists at HSBC in late September trimmed their economic growth forecasts for the German economy, to an annualized rate of 0.8% in the fourth quarter from an earlier estimate of 1.6%.

The economics ministry on Wednesday played down the sharp decline in industrial output during August, saying that it was largely caused by the late timing of the summer vacation. The trend in industry remains "moderately positive," it said.

German industrial production has moved broadly sideways since the start of the year and the recent weakness in industry is add odds with robust business sentiment surveys that are still signaling solid activity in the months ahead.

But economists caution that two straight months of declining manufacturing orders should be seen as a warning. "Over the last couple of months, the industrial safety net of low inventories and filled order books has become thinner," said Carsten Brzeski, an economist at ING in Frankfurt.

The economics ministry said that German production of capital goods in August was down 2.1% from July, while construction output fell 1.3%.

"Germany's industry is losing some steam" and the data point to a reduction in industrial output in the third quarter from the same period a year earlier, said Thomas Huene, an economist the BDI industry association in Berlin. But, according to Mr. Huene, there is no reason to be overly concerned, especially as sentiment among German businesses remains positive.

In September the Ifo think tank's business climate index for manufacturing slid to its lowest level since February, but manufacturers remained optimistic about future trade, reporting plans to ramp up production. Purchasing managers surveys also indicate a solid rise in new business at German manufacturers in September, although data firm Markit's manufacturing PMI slid to 52.3 from 53.3 in August.

Elsewhere in the eurozone, industrial companies in Spain also shifted down a gear during August. Spain's statistics institute INE on Wednesday revealed a 1.4% monthly drop in industrial output, the first decline since November. "A slowdown in emerging-market growth and a relatively strong euro exchange rate suggest further downside risks ahead," said Gizem Kara, an economist at BNP Paribas in London. "The outlook for production is less buoyant," she said.

Write to Nina Adam at [e-mail]

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(END) Dow Jones Newswires

October 07, 2015 08:15 ET (12:15 GMT)

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