Factories feed unexpected rise in industrial output in Germany

Bloomberg

A jump in manufacturing fuelled a surprise improvement in German industrial production following two months of decline. While good news, the development will do little to alleviate concerns about intensifying trade tensions and waning business confidence.
Output rose 0.3% from July, despite a big drop in energy, compared with economist estimates for no change. Investment and basic goods production helped, while motor vehicle manufacturing also grew.
But the outlook remains uncertain, with production down 4% on the year and shrinking factory orders signalling that no real turning point is in sight.
The euro was up 0.1% to $1.0986 in Frankfurt. It’s fallen 2% in the past three months.
The numbers come on the heels of a report that showed factory orders continuing to fall. The malaise has started to spread to other parts of the economy, raising the risk of a recession in Europe’s largest economy. Manufacturing, which accounts for some 23% of output, dropped an annual 4.9% in the second quarter.
The industrial-led downturn is dragging on the broader euro area as well, prompting another round of monetary stimulus from the European Central Bank and pleas to the German government to deploy fiscal stimulus.
There’s been little in the way of good news for the region’s manufacturers.
The US is set to levy import duties on billions of dollars of European products starting next week, and Chinese officials have signaled they’re increasingly reluctant to agree to a broad trade deal pursued by President Donald Trump. Meanwhile prospects of a Brexit deal have faded.
“Despite the recent slight revival, industry remains mired in a downturn,” the economy ministry said in a statement Tuesday, pointing to particular troubles in the auto sector. “Weakness in demand persists.”
Germany’s economy has had periods of volatile growth in the past and a technical recession — two quarters of contraction — isn’t unique.
The risk is that all of the external pressure continues to mount, creating a deeper and more long-lasting slump.
A measure of investor confidence for Germany is at its lowest level in a decade, while German bond yields have fallen far below zero.