German industrial output rises on construction surge

German industrial output rose by 0.7 per cent in February as mild weather helped a surge in construction activity but manufacturing production dipped, doing little to boost spirits in Europe’s largest economy after a run of negative news.

Germany is suffering from trade friction and Brexit angst after narrowly avoiding recession last year. Leading economic institutes slashed their forecasts for 2019 growth on Thursday and warned a long-term upswing had come to an end.

The rise in output exceeded expectations for a 0.5 per cent increase on the month. January’s reading was revised up to show no change from a previously reported contraction of 0.8 per cent, Statistics Office figures showed.

“The industrial sector is expected to remain subdued given the weak development in orders and the gloomier business climate,” the Economy Ministry said in a statement.

“The construction sector remains in a boom. The relatively mild weather contributed to the good result in February.” Industrial orders in Germany fell by the biggest margin in more than two years in February, slumping 4.2 per cent, data showed on Thursday.

The overall gain in industrial output was boosted by a 6.8 per cent surge in construction. Manufacturing output declined by 0.2 per cent in February. In the first two months of the year, auto industry output fell 1.0 per cent from the prior two months.

Commerzbank economist Ralph Solveen said the relatively warm weather would help the economy grow in the first quarter thanks to stronger construction investment, adding: “Without this effect, hardly any growth is to be expected in the first half.” On Thursday, Germany’s leading economic institutes slashed their forecasts for 2019 growth by more than half and warned that the economy could slow much more if Britain quits the European Union without an agreement.

Germany is in its 10th year of economic expansion, but narrowly skirted a recession at the end of last year and posted its weakest growth in five years in 2018. Its export-orientated economy is being slowed by the trade and Brexit headwinds.

“German industry remains an international reason for concern,” ING economist Carsten Brzeski said. “Brexit woes and the global slowdown have a stranglehold over German industry.” Officials are hopeful that once global trade disputes and Brexit are resolved, growth can pick up next year.

Chancellor Angela Merkel has repeatedly said she will “fight until the last hour” for an orderly Brexit.

Germany’s slower-than-previously-expected growth means Finance Minister Olaf Scholz’s room for manoeuvre on fiscal matters is getting tighter as tax revenues are likely to come in lower than expected this year.

Last month, the cabinet passed a draft budget for 2020 that calls for a 1.7 per cent spending increase and relies on ministries to cut costs to avoid incurring new debt in light of the slowdown.

Meanwhile, German Finance Minister Olaf Scholz will urge financial leaders next week to strive for a minimum level of corporate taxation globally and increase debt transparency in developing countries, a senior German government official said on Friday.

The talks in Washington will be dominated by political risks such as trade disputes and Britain’s departure from the European Union, said the government official who spoke on condition of anonymity.

Scholz, who is likely to face calls to increase fiscal stimulus to counter the effect of a slowing economy, will tell allies that germany’s large current account surplus will shrink gradually due to vibrant domestic demand, rising real wages and increased state spending, the official added.

“This won’t happen rapidly, this will happen step by step,” the official said.

Germany expects its current account surplus, by far the largest in the world, to shrink to the equivalent of 6.8 percent of its economic output next year from 7.3 percent this year.

Finance ministers and central bank governors of the world’s 20 biggest economies are due to meet in Washington next week with the state of the global economy and political risks to growth at the top of the agenda.

In a preview of the April 12-14 IMF and World Bank Spring Meetings, International Monetary Fund Managing Director Christine Lagarde said on Tuesday that global growth has lost momentum amid rising trade tensions and tighter financial conditions.

Scholz sees a minimum level of corporate taxation globally as an important step to prevent digital companies such as Google , Facebook and Amazon from booking profits in low-tax countries rather than where their customers are located.

Agencies