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German August industry output plunged — Report

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German industrial output plunged in August at its steepest rate since the height of the financial crisis and the International Monetary Fund cut its German growth forecast, raising further concern that Europe’s largest economy is running out of steam marketers Reuters reported on Tuesday.

The 4.0 per cent month-on-month drop in industrial production missed a consensus forecast in a Reuters poll for a 1.5 per cent decrease and even the lowest forecast for a 3.0 per cent fall. It was the biggest drop since a 6.9 per cent fall in January 2009.

Germany’s economy had a strong start to the year but shrank by 0.2 per cent in the second quarter. Evidence is mounting that it barely grew in the third quarter and some economists even forecast it may have contracted again.

“The bitter awakening in August follows a good July,” said Ulrike Kastens of Sal. Oppenheim, adding that the economy may have contracted slightly in the third quarter.

“The economic dynamism has come to a halt in Germany.”

An 8.8 per cent drop in the production of investment goods weighed on the overall figure, as the automotive industry drove down its production by a quarter during the summer holiday.

The Economy Ministry said the extent of the fall was exacerbated by holiday effects but forecast that production would be weak in the quarter as a whole.

The poor production data comes on the heels of the deepest drop in industrial orders since 2009 in the same month and a slew of weak sentiment indicators reflecting low demand from abroad and uncertainty over the Ukraine conflict.

The IMF cited a slower-than-expected recovery of domestic demand when cutting its growth outlook for Europe’s largest economy on Tuesday. It now sees 2014 growth of 1.4 per cent, down from its 1.9 per cent forecast in July, and cut its 2015 forecast to 1.5 per cent from 1.7 per cent in its world economic outlook.

At a time when Germany is facing pressure to boost public spending — not least to help stalling European growth — the IMF also said Germany should invest more in infrastructure.

“Germany, which has completed its fiscal consolidation, could afford to finance much-needed public investment in infrastructure primarily for maintenance and modernisation, without violating fiscal rules,” the IMF said.

“Large negative growth surprises in euro area countries should not trigger additional consolidation efforts, which would be self-defeating.”

German Chancellor, Angela Merkel’s government has said it has little wiggle room for stimulus given its promise to balance the federal budget next year.

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