German output rise fails to quell fourth-quarter contraction fears

BERLIN Wed Jan 9, 2013 8:25am EST

BERLIN (Reuters) - German industrial output rose less than forecast in November due to a sharp fall in energy and consumer goods production, reinforcing concerns that Europe's largest economy contracted in the fourth quarter.

Output edged up by 0.2 percent on the month in November, supported by an increase in capital goods production and a rise in construction activity, data from the Economy Ministry showed.

The headline figure came in well below a Reuters consensus forecast for a 1.0 percent rise, with a 3.3 percent drop in energy output and a 2.2 percent fall in consumer goods production dragging overall output lower.

"Today's data is the final piece of evidence of an entire batch of industrial data showing that the German economy has slipped into contraction in the fourth quarter," said Carsten Brzeski, senior economist at ING.

Data released on Tuesday had already shown industrial orders tumbling in November as demand from non-euro zone countries waned and exports and imports also sliding.

"All in all, this week's data have provided more evidence that the German economy should have experienced the worst growth performance in the fourth quarter since the first quarter of 2009," Brzeski said.

The output data for October was upwardly revised to a fall of 2.0 percent from a previously reported drop of 2.6 percent.

"Assuming no change in December, industrial production would shrink by a an eye-watering 2.8 percent in fourth-quarter gross domestic product (GDP), thus marking a big swing into negative territory after a rise of 0.9 percent in the third quarter," said Elga Bartsch of Morgan Stanley in a research note.

NO RECESSION SEEN

Until last year, Germany had escaped the euro zone's problems largely unscathed but recent data has shown Europe's paymaster also taking a hit, with the manufacturing sector shrinking for a 10th straight month in December, unemployment rising and consumer morale dropping.

The economy grew by a record 4.2 percent in 2010 and by 3 percent in 2011 but the economy ministry expects growth slowed to around 0.8 percent in 2012 and most economists believe it contracted in the fourth quarter.

However, most economists see Germany avoiding a recession - defined as two consecutive quarters of contraction - and picking up in the first quarter of this year.

Germany's DIW economic research institute said on Wednesday it expected domestic demand to drive growth of more than 2 percent in 2014 after expansion of 0.9 percent in 2013. It had previously forecast growth of 1.6 percent for next year.

The solid labor market would in particular boost private consumption, the DIW said.

"The economic development in Germany is still considerably stronger than in the rest of the currency union, although the currently weak demand from neighboring countries like France and the Netherlands is weighing on the German economy," DIW economist Ferdinand Fichtner told reporters in Berlin.

The economy ministry said industrial orders, which jumped by 3.9 percent in October, and a slight improvement in sentiment indicators pointed to a slightly better outlook for production in 2013.

"After a weak start to the fourth quarter of 2012, industrial production has stabilized for the time being," the ministry said in a statement.

"However, in the fourth quarter it will probably remain below third quarter levels," the ministry added.

German manufacturing output nonetheless remains relatively robust compared to euro zone countries such as Greece, where it fell by 2.9 percent on the year in November.

(Writing by Michelle Martin in London, additional reporting by Sarah Marsh, editing by Gareth Jones)