German industrial output slumps

An unexpectedly sharp slump in German industrial output in February fuelled concern that the economy, the biggest in Europe, is on the brink of a recession, analysts said on Thursday. Data compiled by the economy ministry showed that industrial output fell by 1.3 per cent in February, pulled down by a slump in construction activity as a result of the cold winter weather. Analysts had been expecting a decline of only about 0.5 per cent. A sector-wide breakdown showed that manufacturing output slipped by 0.4 per cent in February, with output of consumer goods falling by 2.1 per cent. Energy output was up 1.6 per cent, but construction output plunged by 17.1 per cent owing to the unusually cold weather. \"The noticeable weakening in industrial output was largely due to weather-related factors,\" the ministry said. \"Experience shows that the construction sector quickly catches up with the onset of a spring,\" it said. Analysts were not so sure and saw the data as a sign that the German economy, which already shrank 0.2 per cent at the end of last year, may now have entered a recession, which is technically defined as two consecutive quarters of contraction. The data \"have brought further signs that the former engine of the eurozone recovery has gone sharply into reverse,\" said Capital Economics chief European economist, Jonathan Loynes. \"Not only was the monthly drop over twice as big as expected, but January\'s rise was revised downwards too,\" the economist said. He conceded that the figures were depressed by the particularly sharp drop in construction output. \"But other sectors were weak too, with a 2.0-per cent drop in consumer goods production further undermining the idea that Germany is seeing some sort of consumer \'boom\',\" he said. \"Industry will now act as a serious drag on overall gross domestic product in the first quarter, making it very likely that Germany entered a technical recession,\" he concluded. Annalisa Piazza at Newedge Strategy was not so pessimistic. While the data \"clearly show that Germany is not completely unaffected by the ongoing cyclical slowdown... GDP is still expected to remain positive in 2012 but we suspect the economy will not grow more than 1.0 percent over the year,\" she said. Christian Schulz at Berenberg Bank also said a \"further quarterly contraction of GDP after the 0.2-per cent fall in the fourth quarter of 2011 seems likely.\" But \"leading indicators for Germany such as the Ifo and ZEW indices point to a continued rebound in confidence, which could lead the economy back to modest growth in the second quarter,\" he suggested. Data released on Wednesday showed that industrial orders in Germany inched up in February, buoyed by a rebound in foreign orders.