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Germany

German Industrial Output Slumps, Signaling End of Upswing

German industrial orders fell in May for the sixth month in a row, official figures have shown, prompting analysts to voice alarm and declare an end to a vital boom in the manufacturing sector.

A stock market trader stands in front of a board showing the downward trend of the German stock market

Industrial orders have taken a dive in Europe's biggest economy

Industrial orders for German companies fell by 0.9 percent in May from the previous month in Europe's biggest economy, according to provisional and seasonally corrected figures released by the economy ministry. Analysts polled by Dow Jones Newswires had expected the leading indicator to gain 0.8 percent.

The decrease was nonetheless an improvement from April, when industrial orders fell by 1.8 percent on a monthly basis. But for Natixis analyst Costa Brunner, the latest decline "is definitely an alarming sign for the German industry and the economy as a whole."

Postbank's Fabienne Riefer said the German industrial sector's "best days are behind it," while Matthias Rubisch at Commerzbank declared: "The boom in the manufacturing sector is over."

Germany falls in line

Germany, which is also the world's leading exporter at present, has resisted a slowdown seen in other eurozone countries and the United States but is now headed for a patch of much weaker growth.

"Western Europe now follows the US into a marked downturn," Rubisch said.

For Brunner, the order data underscored "an accelerating risk to the cooling down of important trading partners."

Adding to evidence that the German economy could be heading for a slowdown as the year unfolds, data released last week showed German factory orders falling for the sixth consequence month in May. Slumping production in Germany's key industrial sector and the nation's building industry lead the overall fall in output, Monday's figures showed.

Domestic consumption down

Analysts had expected industrial production to increase by a very modest 0.2 per cent in May. However, when the two months of April and May are compared to February and March, German output contracted by 1.8 per cent.

Last week, the German retail federation HDE cut its 2008 forecast for domestic consumption growth to 1.5 percent after first-half results came in lower than expected. It was one of a number of increasing signs that an anticipated pickup this year in German consumption and domestic investment would not occur.

But while domestic orders fell by 2.7 percent in May, foreign demand grew by 0.8 percent, a ministry statement said. Exports have still managed to hold up, and German companies report their foreign order books are still fairly full. Even so, Rubisch forecast: "From now on only moderate GDP (gross domestic product) growth can be expected."

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