German output reports biggest rise in 16 years (Roundup)

By Andrew McCathie Jul 8, 2009, 12:24 GMT

Berlin - German industrial production surged by a more-than- forecast 3.7 per cent in May to report its biggest rise in 16 years, the economics ministry said Wednesday, adding to hopes of a pickup in Europe's biggest economy by the end of the year.

Economists had forecast the data would show output climbing by just 0.5 per cent with the increase coming amid signs that the global recession is starting to loosen its grip on Germany.

'The industrial sector has passed its low point,' said Commerzbank economist Ralph Solveen.

Spearheaded by rising car production, the sharp increase in May production comes in the wake of months of dramatically falling production in Germany as the nation faced up to its economic downturn in more than sixty years.

The release of the latest output data followed the publication of figures Tuesday showing factory orders in the nation surging by 4.4 per cent in May.

Figures to be released Thursday by Germany's statistics office are forecast to show German exports rising by a seasonally adjusted 1.5 per cent in May, raising the prospects that the world economic demand is gaining ground.

A 1.5-per-cent increase would help to compensate for the hefty 4.8-per-cent drop in German exports in April. German imports are forecast to rise by 0.8 per cent in May, compared to a 5.8-per-cent fall in April.

Many economists believe as the world's leading export nation Germany could enjoy a rather speedy recovery from recession on the back of a sustained upswing in global trade.

Key forward-looking economic sentiment indicators have already pointed to the slowdown in the German economy starting to bottom out with business confidence in the nation rising for the third consecutive month in June.

But while manufacturing output rose by 5.1 per cent in May and output of investment goods jumped by 8.3 per cent, Wednesday's industrial production showed the construction industry slumped by 3.2 per cent.

This is despite the boost to infrastructure projects resulting from Chancellor Angela Merkel government's more than 80-billion-euro (111.4-billion-dollar) stimulus plans.

Moreover, announcing the latest output data, the Ministry of Economics and Technology revised down the April fall in output to 2.6 per cent compared to a previously estimated drop of 1.9 per cent.

May industrial output has tumbled by about 18 per cent compared to the same month in 2008, consequently underscoring the depths of the German recession.

This, economists said, is likely to mean that the German economy once again contracted during the second quarter after it chalked up a 3.8-per-cent slump during the first three months of the year.

Indeed, the German economy is tipped to shrink by 6 per cent plus this year as it reels from the recession which took hold in the last months of 2008.