Industrial production in Germany, Europe’s largest economy, dropped for the sixth consecutive month in February as the global recession hit demand for German product, both at home and abroad. Output fell a seasonally adjusted 2.9 percent from January, when it slumped 6.1 percent, the most since data for a reunified Germany began in 1991. From a year earlier, output was down by 20.6 percent.
Although the pace of decline was slower than in January, this month’s drop was led by a 4.5 percent slump in production of investment goods, according to the Economy Ministry, and this certainly does not bode well for the future. The rate of decline in manufacturing activity continued to slow in March, although activity in the sector continues to contract at a sharp pace, according to the latest PMI which rose to 32.4 in March, up one point from February's figure. The March increase marks the second consecutive month of improvement after PMI reached a 12-year low in January of 32.0. Nevertheless, the figure remains well in contraction territory, with the average taken across Q1 as a whole notably lower than the previous quarter's figure. According to the PMI report, manufacturing output and new orders continued to contract, albeit at a reduced pace, while employment fell at a record pace over the month. "The sector's performance in Q1 was at least as bad as Q4 and therefore points to another heavy fall in GDP," Markit senior economist Paul Smith said.
In addition manufacturing orders plunged 38 percent in February from a year earlier, exports dropped for a fifth month, and German business confidence fell to the lowest level in more than 26 years in March. The economy may shrink as much as 5.3 percent this year before a “slow” recovery in 2010, according to the Organization for Economic Cooperation and Development.
Latest indicators suggest “that the decline in gross domestic product in the first quarter of 2009 could be even stronger than in the last quarter of 2008,” when the economy contracted 2.1 percent, Bundesbank President Axel Weber said last week.
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