German industrial production, export figures for May disappointing, add to mixed signals

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Germany's industrial production and exports dropped further than expected in May, official figures showed Monday, but economists argued that the disappointing data were more a result of volatility than a sign of serious risks.

Industrial production in Europe's largest economy was down 1 percent in May compared with the previous month, the Economy Ministry said — worse than economists' prediction of a 0.5 percent decline. That followed a 2 percent gain in April, revised upward from the initial reading of 1.8 percent.

Earlier Monday, data showed that exports from Europe's biggest economy were down 2.4 percent on the month in May. Economists had forecast a flat reading.

Germany so far has weathered Europe's debt crisis relatively well — helped by its traditional export strength and a robust job market that is fueling domestic demand.

The economy returned to modest growth in the first three months of 2013, after contracting during last year's final quarter, and analysts expect it to pick up further. A closely watched survey showed German business confidence edging higher in June.

Still, Monday's data — which come on top of an unexpected 1.3 percent drop in May's industrial orders — added a downbeat note. The slip was led by a fall in demand from other countries in the 17-strong group of European Union counties that use the euro and from Germany itself.

Alexander Koch, an economist with UniCredit in Munich, argued that "the weakness in all three data reports has to be rated as a technical correction rather than an end to the recent recovery trend."

He argued that a recovery in construction, increasing consumer spending and an overall upward trend in manufacturing back expectations that the economy grew by 0.6 percent in the second quarter, after expanding by only 0.1 percent in the first.

Stocks trading on Germany's main DAX index Monday appeared unaffected by the raft of disappointing figures, with shares up 2.3 percent in early-afternoon trading.

ING economist Carsten Brzeski said German monthly data have been very erratic lately but "the sound fundamentals of the economy have not disappeared."

"We still think that at the end of a weather- and holiday-driven rollercoaster ride, the German economy should finally return to full strength in June," he said.

Germany's exports have been helped by strong demand from beyond Europe. In year-on-year terms, exports were down 4.8 percent in May — led lower by a 9.6 drop in demand from other countries in the eurozone, while exports to countries outside the European Union were down only 1.6 percent.

Germany's BGA exporters association pointed to Europe's weakness and a soft patch in China to underline the importance of negotiations on an EU-U.S. trade agreement that were starting Monday. Its head, Anton Boerner, said that "everything should be done to ensure that this historic chance is not missed."