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German industrial output rises on construction surge

BERLIN (Reuters) - German industrial output rose by 0.7 percent in February as mild weather helped a surge in construction activity but manufacturing production dipped, doing little to boost spirits in Europe’s largest economy after a run of negative news.

FILE PHOTO: A steel worker of Germany's industrial conglomerate ThyssenKrupp AG wears protection helmet as he works near a blast furnace at Germany's largest steel factory in Duisburg, Germany, January 28, 2019. REUTERS/Wolfgang Rattay/File Photo

Germany is suffering from trade friction and Brexit angst after narrowly avoiding recession last year. Leading economic institutes slashed their forecasts for 2019 growth on Thursday and warned a long-term upswing had come to an end.

The rise in output exceeded expectations for a 0.5 percent increase on the month. January’s reading was revised up to show no change from a previously reported contraction of 0.8 percent, Statistics Office figures showed.

“The industrial sector is expected to remain subdued given the weak development in orders and the gloomier business climate,” the Economy Ministry said in a statement.

“The construction sector remains in a boom. The relatively mild weather contributed to the good result in February.”

Industrial orders in Germany fell by the biggest margin in more than two years in February, slumping 4.2 percent, data showed on Thursday.

The overall gain in industrial output was boosted by a 6.8 percent surge in construction. Manufacturing output declined by 0.2 percent in February. In the first two months of the year, auto industry output fell 1.0 percent from the prior two months.

Commerzbank economist Ralph Solveen said the relatively warm weather would help the economy grow in the first quarter thanks to stronger construction investment, adding: “Without this effect, hardly any growth is to be expected in the first half.”

On Thursday, Germany’s leading economic institutes slashed their forecasts for 2019 growth by more than half and warned that the economy could slow much more if Britain quits the European Union without an agreement.

Germany is in its 10th year of economic expansion, but narrowly skirted a recession at the end of last year and posted its weakest growth in five years in 2018. Its export-orientated economy is being slowed by the trade and Brexit headwinds.

“German industry remains an international reason for concern,” ING economist Carsten Brzeski said. “Brexit woes and the global slowdown have a stranglehold over German industry.”

Officials are hopeful that once global trade disputes and Brexit are resolved, growth can pick up next year.

Chancellor Angela Merkel has repeatedly said she will “fight until the last hour” for an orderly Brexit.

Germany’s slower-than-previously-expected growth means Finance Minister Olaf Scholz’s room for maneuver on fiscal matters is getting tighter as tax revenues are likely to come in lower than expected this year.

Last month, the cabinet passed a draft budget for 2020 that calls for a 1.7 percent spending increase and relies on ministries to cut costs to avoid incurring new debt in light of the slowdown.

Additional reporting by Rene Wagner; Editing by Tassilo Hummel and Angus MacSwan