German industry output rounds out weak Q2 with rebound in June

Uncertainty generated by Britain's vote in June to leave the European Union has also clouded the trading outlook

German industrial output rose slightly more than expected in June, but a subdued order intake and a manufacturing outlook clouded by the Brexit vote has kept the onus on private consumption to drive growth in Europe's largest economy.

Industrial output rose 0.8 per cent on the month, data from the Economy Ministry showed on Monday, above the consensus forecast of 0.7 per cent in a Reuters poll. The May reading was revised up to a fall of 0.9 per cent.

The June rebound rounded out a weak second quarter when a slowdown in construction – after a mild winter – held back output. In the second quarter as a whole, industrial output contracted by 1.0 per cent.

 

"Given a subdued development in incoming orders, a rather moderate upward development in the industrial sector is to be expected in the coming months," the Economy Ministry said in a statement.

The German economy expanded by 0.7 per cent in the first quarter, more than doubling its growth rate as higher state and household spending, as well as rising investment on construction and capital goods offset a drag from foreign trade.

Foreign trade, formerly the engine of German growth, looks unlikely to inject fresh dynamism into the economy as the modest development in orders and uncertainty generated by Britain's vote in June to leave the European Union cloud the trading outlook.

Some German companies are holding off making investments in Britain until they know more about the post-Brexit relationship the country will forge with the rest of Europe.

"Increased uncertainty about the future of Europe and the euro zone in the wake of the Brexit vote should in our view leave some marks on German industrial activity over the coming months," said ING economist Carsten Brzeski.

"With stagnating industrial activity, thinner order books and dropping inventories, chances remain low that the former backbone of the German economy will quickly return to its old strength," he added.

A Reuters poll points to 0.3 per cent growth in the German economy in the second quarter, figures for which are due to be released on August 12.

The Economy Ministry said that a 4.3 per cent drop in construction output in the second quarter was weather-related after a mild winter, but that the conditions for the sector remained positive.