May 8, 2012 / 12:10 PM / 8 years ago

UPDATE 2-Germany out of "hibernation", industry soars back

* March output +2.8 pct vs Feb output -0.3 pct
    * Reuters forecast for +0.8 pct in Mar


    By Alice Baghdjian 	
    BERLIN, May 8 (Reuters) - German industry output shot up far
more than expected in March after a weak winter, lifting hopes
Europe's biggest economy will gather steam this year and
highlighting its economic divergence with much of the rest of
the euro zone. 	
    Production in Germany jumped 2.8 percent in March seasonally
adjusted from the previous month, Economy Ministry data showed
on Tuesday, recovering from a revised 0.3 percent decline in
February.	
    The figures were well above the consensus forecast in a
Reuters poll for a 0.8 percent rise, and overshot the highest
forecast of a 2.4 percent increase.	
    "Hibernation has ended," said Carsten Brzeski at ING Bank.	
    "While almost all other euro zone countries are currently
caught in the downward spiral of austerity measures,
deleveraging and economic reforms, the German economy is still
enjoying the results of earlier structural reforms," he said.	
    The jump in output followed a steep rise in industrial
orders in March, which rose on the back of demand from outside
the ailing euro zone. 	
    The data also countered a string of disappointing German
economic data recently that has questioned the export-driven
economy's resilience to the euro zone's debt troubles although
risks to Germany's outlook from the euro zone's problems remain.
 	
    "March's sharp rise in German industrial production reduces
the risk that the economy is already in recession," said
Jennifer McKeown at Capital Economics.    	
    Germany's economy has powered ahead of its peers after
recovering swiftly from the 2008/09 financial crisis and has
consistently brushed off the debt worries plaguing peripheral
euro zone countries.	
    The German economy slipped up only in the final quarter of
last year, contracting by 0.2 percent, as economic woes in the
currency bloc stifled demand and weakened private consumption at
home.	
    However, economists now say this was a glitch, and Germany's
eight leading economic institutes have revised their 2012 growth
estimates upwards to 0.9 percent. The government has stuck to
its forecast of 0.7 percent growth for this year.	
     Wolfgang Franz, head of a panel of German government
economic advisers known as the "wise men", told Reuters
separately on Tuesday that indicators suggested Germany might
skirt recession but that it would be touch and go.	
    "First quarter figures could swing on either side of zero,
perhaps slightly below, perhaps slightly above," said Franz.	
        	
    RELIANCE ON ASIA	
    Germany is not immune to the euro zone's problems though and
 its high-end exports within the currency bloc have shown signs
of wobbling, as austerity measures, high unemployment and weak
growth begin to take their toll on orders.	
    The German manufacturing sector contracted at the fastest
pace since 2009 last month on the back of flagging demand and
German companies are showing growing reliance on orders from
outside the euro zone and in the domestic market.
 	
    Car sales to China have been gaining traction and German
luxury names account for nearly 80 percent of the premium car
market there, figures from PricewaterhouseCoopers show.	
    German luxury carmakers BMW and Porsche
 reported record first-quarter profits as Chinese
demand for sporty sedans and SUVs surged, underscoring their
growing dependence on Asian markets. 	
    German business sentiment rose for the sixth month in a row
in April, defying forecasts for it to fall. 	
    But consumer confidence inched down heading into May, and
retail sales, a notoriously volatile indicator have fallen for
four out of the last six months, tempering hopes that private
consumption will help the economy through any weak phase.	
    "It would be premature to believe that the German economy
can maintain strong growth rates when the rest of the euro zone
is faltering," said ING's Brzeski.
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