Policy: Economy

German industry production down 3rd straight month

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BERLIN (AP) — German industrial output fell sharply in May, a third consecutive drop that suggests Europe's biggest economy and engine of growth lost steam in the second quarter amid slowing business in China and tensions over Ukraine.

The 1.8 percent drop compared with the previous month also reinforces concerns over the economy of the wider 18-country eurozone as other countries, such as France, are still too weak to pick up the slack.

Monday's figure, published by the Federal Statistical Office, undercut economists' expectations for no change. Production slipped 0.3 percent in April, revised downward from the initial reading of 0.2 percent growth.

The Economy Ministry pointed to a calendar effect from holidays in May and expected weakness in construction after very mild weather in the year's first quarter, but said "geopolitical causes" may also have contributed. Tensions with Moscow over the crisis in Ukraine have raised concerns that Western powers including Germany might sanction business ties with Russia.

Overall, German industrial activity remains strong and companies have well-filled order books, but "the stimulus for a further acceleration is currently missing," ING economist Carsten Brzeski said. He argued the data show that "risk factors like slowing emerging market economies, including China, and geopolitical conflicts do have an impact on the German economy."

Germany's economy grew by a robust 0.8 percent in the first quarter compared with the previous three-month period, helping push eurozone output up a feeble 0.2 percent despite the French and Italian economy's failure to pick up and declines in the Netherlands and elsewhere.

Mixed signals from recent data have fueled expectations of much slower German second-quarter growth, likely depriving the eurozone of much-needed support.

UniCredit economist Martina von Terzi said there are strong risks that German growth will undershoot her forecast of 0.5 percent in the second quarter. Retail sales and manufacturing activity have disappointed recently, though export data have yet to be released.

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