German factory output drops as economic gloom deepens.

Factory production in Germany dropped in July, highlighting the weakening state of the eurozone’s biggest economy as it teeters on the brink of recession.

Industrial output in July fell 0.6 per cent from the previous month, improving on a revised decline of 1.1 per cent in June but off the expected 0.3 per cent climb that was forecast in a Reuters poll, the national statistics office said on Friday. Production was down 4.2 per cent from July 2018.

Friday’s figures from Destatis come after data showed a drop in industrial orders from non-eurozone companies in the latest sign of how much the economy is struggling in the face of a US-China trade war and other geopolitical woes.

“Disappointing industrial production data adds to the case for policy action,” said ING analysts in their morning note. “At least in the short run, the prospects for German industry remain bleak. Even with a magnifying glass, it is impossible to find signals of an imminent rebound.”

Production in industry minus energy and construction fell 0.8 per cent in July, the statistical office said. Output of intermediate goods dropped 0.7 per cent while capital goods fell 1.2 per cent. Consumer goods meanwhile rose 0.6 per cent, while energy declined 1.3 per cent. “Another data miss confirming Germany’s economic slowing,” said Mohamed El-Erian, chief economic adviser at Allianz. “Also of interest: Growth in construction (+0.2 per cent) confirms that, for now, domestic activities continue to outpace export-oriented ones.”

Germany’s economic output shrank in the second quarter, and its central bank has warned that it may decline in the July-to-September quarter. A recession is defined as two consecutive quarters of contraction. The trade skirmish between the US and China along with signs of a slowdown in global growth have both dealt a strong blow to the world’s third-biggest economy, which has a sprawling manufacturing industry that is particularly susceptible to fluctuations in world trade.

The European Central Bank is expected next week to unveil fresh stimulus measures as it looks to steady the bloc’s economy. “All in all, a very weak start to the third quarter for German industry,” said Carsten Brzeski at ING. “Even if this data comes too late to be incorporated into next week’s official ECB forecasts, it will be another argument for ECB members in favour of new monetary stimulus.”


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