German industrial output leaps higher in May

Germany got a big boost yesterday when the economy ministry reported that industrial output jumped by a 3.7 per cent in May from the previous month, a sign the country's deep recession might be nearing an end.

"Industrial production may have passed the trough," in Europe's biggest economy, a ministry statement said, adding that the sector outlook was brighter than in April, when production fell by a revised 2.6 per cent.

Analysts polled by Dow Jones Newswires had expected a seasonally-adjusted rise of just 0.5 per cent, and yesterday's figure, the sharpest monthly gain since August 1993, followed an unexpected surge on Tuesday of 4.4 per cent in industrial orders, a key indicator of future activity.

On a 12-month basis, industrial output nonetheless fell by 18.8 per cent in absolute terms and by 17.9 per cent when corrected for the number of working days, the ministry said, a clear sign of how much the economy has shrunk in a year.

It was the second good piece of news from the economy ministry, which said Tuesday that industrial orders had gained much more than expected in May, suggesting the upward momentum in output could be maintained.

Germany is suffering its worst recession since World War II, and the government has forecast economic activity will shrink by six per cent this year.

Spurring economic growth is a key topic for leaders of the Group of Eight most industrialised countries as they meet in the earthquake-struck Italian town of L'Aquila.

John Kirton, director the University of Toronto's G8 Research Group, said the leaders would "try to nurture the economic 'green shoots' now appearing in G8 economies into a reliable recovery."

One obstacle however is weak levels of bank lending to the private sector, growth of which in the eurozone hit an all-time low of 1.8 per cent in April, according to European Central Bank.

Banks seem to be using hundreds of billions of euros, dollars, pounds and yen provided by central banks to bolster balance sheets rather than to extend credit to the larger economy, generating increased irritation among central bankers and politicians.

But businesses and households are also demanding fewer loans because of the global economic slump and rising unemployment, economists point out.

In Germany, many companies complain of tighter credit however, and between January and April, more than 10,000 companies declared insolvency according to official data released yesterday.

Large and small German companies that depend on exports have been hit hard by the worldwide slowdown, and chemical giant BASF said Tuesday it would get rid of 3,700 jobs by 2013.

With unemployment on the rise, a key question is whether the significant easing of recessionary pressures will last.

A breakdown of the German industrial output data showed that production of capital goods, which includes cars, leapt by 8.3 per cent in May on the month, while construction activity fell by 3.2 per cent.

Overall, a two-month sliding average designed to smooth out volatile items put industrial output at 0.7 per cent lower in April and May compared with February and March.

But the figures nonetheless "offer some relief for the German industry" ING economist Carsten Brzeski said. "The recession in the industrial sector is bottoming out."