German construction boosts May industrial output

German industrial output increased in May, propelled by a sharp increase in activity in the construction sector, official data showed on Friday. Despite the better-than-expected data, analysts nevertheless said that caution was warranted. Industrial production increased by 1.6 percent in May from the level the previous month, the economy ministry said in a statement. That was a sharper increase than expected: analysts polled by Dow Jones Newswires had been pencilling in a more modest rise of around 0.4 percent. In April, output had fallen by 2.1 percent month-on-month. Construction output jumped by 3.1 percent in May, and manufacturing output rose by 1.6 percent, with output of consumer goods up by 3.8 percent. Energy output, on the other hand, was down by 1.6 percent, the data showed. Data released on Thursday showed that industrial orders in Germany rose by a faster-than-expected 0.6 percent in May, driven by strong export orders. "The bounce in German industrial production in May does not change the picture of a sharp slowdown in the sector previously seen as the economy's main engine of growth," said Capital Economics economist Jonathan Loynes. "Given the volatility of the data, another monthly fall in June would be no surprise and would leave industry's contribution to overall (economic) growth in the second quarter much weaker than that seen in the first quarter," he warned. Berenberg Bank economist Christian Schulz said that "together with resilient consumption, the construction sector may counterbalance some of the inevitable weakness in other sectors due to the European confidence crisis." But he, too, said caution was warranted. "Sentiment indicators show that the European crisis is dampening activity. Falling investment and net exports are likely to drag down overall growth over the summer," the analyst said. "Only once the financial market tensions are brought under control, will the positive fundamentals return the economy to trend growth again."