German industrial output posts biggest drop in a year

German industrial output posted its steepest drop in more than a year in September, suggesting Europe’s biggest economy may feel a year-end chill from a slowdown in emerging markets.

The 1.1 per cent drop announced on Friday was the second consecutive monthly fall in production and defied expectations in a Reuters poll for a rise of 0.5 per cent.

Combined with September’s sharp decline in industrial orders, due mainly to weaker foreign demand, the fall in output will feed speculation that the economy may lose steam at the end of the year.

Economists said the data suggested that the economy could not rely on industry to support growth as it heads into the final quarter.

“The result for the third quarter really does not look good and contrasts with the still good sentiment indicators,” said Ulrike Kastens, economist at Sal. Oppenheim.

“In view of the problems in emerging markets, it’s hard for us to imagine where a quick rebound for German industry should come from,” she said, adding that consumption remained the only ray of hope.

Output declined across all sectors, except for energy which notched up a 0.3 per cent increase.

In the less volatile three-month comparison, factories produced 0.3 per cent fewer goods on the quarter in the July-September period, with an increase in construction failing to fully offset a fall in manufacturing output.

“After a good development in the first half, German industry is currently experiencing a light tailwind from the world economy, in particular due to a slowdown in some large emerging markets,” the Economy Ministry said in a statement.

Nonetheless, businesses continue to remain positive, the ministry said, suggesting the current dry spell would only be limited.

The data comes after the BGA wholesalers and exporters body last week raised its forecast for export growth for 2015, saying demand from Europe and the United States would offset weaker emerging markets and any negative impact from the Volkswagen scandal.

The German government expects strong private consumption and higher state spending on refugees to drive growth in Europe’s largest economy by 1.7 per cent this year and by 1.8 per cent next year.