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UPDATE 1-German industrial output drop fuels recession risk

* Output falls by 0.6% m/m vs forecast for 0.3% rise

* Output driven down by drop in capital goods production

* Batch of weak recent data fuels concerns of recession (Adds economist comment, background)

BERLIN, Sept 6 (Reuters) - German industrial output unexpectedly fell in July, adding to signs that struggling manufacturers could tip Europe's biggest economy into a recession in the third quarter.

Industrial output fell by 0.6% on the month, figures released by the Statistics Office showed, bucking expectations for a rise of 0.3%. The drop was driven by a decline in the production of capital goods.

"A recession in the industrial sector will continue and production has fallen for the fifth consecutive month," Bankhaus Lampe economist Alexander Krueger said. "That firms up the prospects of a technical recession."

Economists generally define a technical recession as at least two consecutive quarters of contraction.

June's reading was revised to a fall of 1.1% from a previously reported 1.5% fall.

Germany's export-reliant economy is suffering from slower global growth and business uncertainty caused by U.S. President Donald Trump's 'America First' trade policies and Britain's planned, but delayed, exit from the European Union.

German Chancellor Angela Merkel said at the start of a visit to Beijing on Friday that the China-U.S. trade war affects the whole world and that she hopes it will be resolved soon.

Official data published on Thursday showed weaker demand from abroad drove a bigger-than-expected drop in German industrial orders in July.

Germany's gross domestic product contracted (GDP) by 0.1% quarter-on-quarter in the second quarter on weaker exports, with the decrease in foreign sales mainly driven by Britain and below average demand from China.

A run of weak data since then has fueled concerns that the economy could tip into recession in the July-September period.

"The nightmare is now unfolding, and it can't be shaken off," Thomas Gitzel, economist at VP Bank Group, said after Friday's data. (Writing by Paul Carrel Editing by Michelle Martin)