German industry output plunges most in over 5 years

German industrial output fell far more than expected in August and posted its biggest drop since the financial crisis in early 2009, Economy Ministry data showed on Tuesday, the latest figures to raise question marks about Europe's largest economy.

The 4.0 percent month-on-month drop missed the consensus forecast in a Reuters poll for a 1.5 percent decrease and came short even of the lowest forecast for a 3.0 percent fall. It was the biggest drop since a 6.9 percent fall in January 2009.

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"You can tell that companies' uncertainty is slowly feeding through to hard data," said Stefan Kipar of Bayern LB. "But we still expect positive, if small growth for the third quarter."

Germany's economy had a strong start to the year but shrank by 0.2 percent in the second quarter. Evidence is mounting that it barely grew in the third quarter and some economists even forecast it may have contracted again.

"Industrial production is currently going through a weak phase ...but the current decline is exacerbated by holiday effects," the ministry said in a statement.

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"All in all, one should expect weak production for the third quarter as a whole."

With the euro zone flirting with deflation and growth for the currency bloc still subdued, hopes have rested on Germany to boost spending and drive growth.

"The August drop overstates the downtrend," said Christian Schulz of Berenberg bank, adding however that he did not expect much economic growth in the second half of the year.

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Weak investment, which together with slow trade weighed on the economy in the second quarter, put a downer on production figures. Investment goods dropped by 8.8 percent month on month, as the car industry drove down its output by a quarter.

The output data for July was revised downwards to a 1.6 percent increase from a previously reported 1.9 percent rise.

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