July 8, 2013 / 6:31 AM / in 5 years

RPT-UPDATE 3-German economy struggles as exports and output tumble

* Exports drop 2.4 percent, imports climb 1.7 percent in May
    * German industrial production falls 1 percent
    * Germany suffering from euro crisis, slowdown in China

    By Michelle Martin
    BERLIN, July 8 (Reuters) - German exports fell the most
since late 2009 in May and industrial output tumbled, suggesting
Europe's largest economy is struggling to regain traction,
although a rise in imports pointed to robust domestic demand.
    Combined with last week's figures showing a sharp drop in
industrial orders and contraction in the manufacturing sector,
the data underscores how much Germany is suffering from weaker
demand in Europe and now in China, too.
    "May's German industrial and trade data are a blow to hopes
that a strong recovery in the euro zone's largest economy might
soon pull the region out of recession," said Jennifer McKeown,
senior European economist at Capital Economics.
    A bastion of strength in the early years of the euro zone
crisis, the German economy shrank in late 2012 and had a subdued
start to 2013, narrowly avoiding a recession thanks to private
    Exports, traditionally the backbone of the German economy,
dropped a seasonally adjusted 2.4 percent in May, data from the
Federal Statistics Office showed, far more than the consensus
forecast in a Reuters poll for a 0.4 percent drop and double the
weakest estimate for a 1.2 percent fall.
    Shipments to the euro zone, where Germany sends 40 percent
of its goods, fell 9.6 percent in May compared with the same
month last year. Exports to countries outside Europe slipped 1.6
percent, with a slowdown in China reducing appetite in the
country many German firms had looked to as an alternative.
    "German exports dropped sharply in May, illustrating that
the economy still has difficulties to shift into a higher gear,"
said Carsten Brzeski, senior economist at ING, adding that this
was due to calendar effects and weaker demand from China.
    A purchasing managers' survey published last week suggested
that the export situation had not improved by June, when
bookings from abroad, especially Asia and elsewhere in Europe,
dropped in the manufacturing sector for a fourth straight month.DECLINE IN OUTPUT
    Industrial output slid by 1 percent in May, twice as much as
forecast and the biggest fall since October, as factories
produced fewer capital goods and the construction industry
stuttered, data from the Economy Ministry showed.
    Economists said this was partly a correction after the
previous month's upwardly revised 2 percent gain and partly due
to the high number of public holidays in May and winter weather.
The ministry said the overall trend remained positive.
    McKeown said net trade looked likely to make a big negative
contribution to gross domestic product in the second quarter.  
    The government expects exports to be a drag on GDP this year
and is relying on private consumption, helped by higher wages, a
robust labour market and moderate inflation, to support growth.
    A 1.7 percent rise in imports will therefore be welcome news
for the government as it shows Germans are buying more goods
from abroad.
    "The strength in imports shows domestic demand is robust,
which is good for German growth because consumption and
investment could make positive contributions to GDP," said
Christian Schulz at Berenberg Bank.
    The rise in imports, which overshot even the highest
estimate in a Reuters poll for a 1.2 percent increase, also
offers hope to struggling euro zone states seeking to export
their way out of their downturns.
    Recent German non-industrial data has been fairly positive,
with sentiment surveys improving, the private sector expanding,
joblessness falling and retail sales rising. 
    The seasonally adjusted trade surplus narrowed to 14.1
billion euros from a downwardly revised 17.5 billion in April.
The consensus forecast was for a fall to 17.5 billion euros. 
    The German economy is still outperforming peers within the
euro zone. France's trade deficit with the rest of the world
widened sharply in May, while Spain's industrial output fell for
the 21st month in a row.
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