German industrial production fell most in seven years
Output dropped a seasonally adjusted 2.3 percent from March, when it rose 0.2 percent, the Economy and Technology Ministry in Berlin said. That's the biggest drop since June 2000 and the first decline in six months. Economists expected a gain of 0.6 percent, according to the median of 36 forecasts in a Bloomberg News survey. From a year ago, output rose 3.8 percent.
German economic growth may have reached a plateau after powering the 13-nation euro-region economy to its fastest expansion this decade last year. Manufacturing orders declined for the first time in three months in April and exports rose less than expected. “The slowdown in construction is not surprising after the strong first quarter,” said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. “Overall, this does not change our optimistic outlook for the German economy.”
Bielmeier forecasts economic growth of 2.8 percent this year, matching last year's expansion, which was the fastest in six years.
Construction output dropped 2.9 percent in April and manufacturing output declined 2.4 percent, the report showed. In a two-month comparison, which smoothes out monthly volatility, industrial production declined 0.8 percent. ------------Distorted picture
The mildest winter on record boosted construction output in the first two months of the year, bringing forward the seasonal upswing that usually takes place in March. Temperatures averaged 4.3 degrees Celsius over the winter months compared with the 0.2 degree historical average, according to the Federal Meteorological Service.
“Strong construction activity during the winter is now distorting the picture somewhat,” said Marco Bargel, chief economist at Deutsche Postbank AG in Bonn. ---------------Orders jump
Germany's VDMA machine makers' lobby on May 31 more than doubled its forecast for production growth this year, saying output will gain 9 percent instead of a previously predicted 4 percent. Orders jumped 12 percent in April from a year earlier. “Companies' order books are still full for the next two years,” said Alexander Koch, an economist at UniCredit Markets and Investment Banking in Munich. “The expansion may have peaked, but it has stabilized at a high level.”
Business confidence last month stayed near a record while unemployment at a six-year low of 9.2 percent is helping drive a rebound in consumer spending. Retail sales in April rose the most in four months and the GfK market research company said last month its gauge of consumer confidence increased to a five-month high.
A U.S. slowdown and the stronger euro may become the biggest drags on growth this year. The world's largest economy grew at the weakest pace in more than four years in the first quarter.
At the same time, the euro's 5.5 percent gain against the dollar over the past year is making European exports less competitive abroad. The single currency traded at $1.3342 in Frankfurt.
So far, booming Asian markets are helping counter the U.S. slowdown. The International Monetary Fund last month said the global economy may expand about 5 percent for a fourth straight year, even as it anticipates the weakest U.S. growth since 2002.
German chemical maker Lanxess AG said last week it will spend more than 300 million euros ($402 million) to expand capacity to meet demand in Asia. About 40 percent of that investment will be channeled into its German operations.