German economy on track despite gloomy May data

Weak German export and industrial figures on Monday highlighted the fragile recovery of the economy but leading indicators from the Organisation for Economic Cooperation and Development signalled that growth in the eurozone powerhouse is on track. Despite the gloom cast by Germany's disappointing May data, the OECD said in its monthly report of leading indicators that activity was looking up for the eurozone and that German growth was getting back to trend levels. The picture for the eurozone as a whole "continues to indicate a gain in growth momentum", the organisation said, especially pointing to Germany, but warning that the outlook for France is "relatively stable.". The report came as initial data from Germany's economy ministry showed that industrial output fell one percent in May from activity a month earlier, largely owing to a drop in the construction sector. The figures heightened concern that the recovery in Europe's biggest economy from the eurozone crisis remains fragile. The decline in industrial production, after allowing for seasonal variations, was worse than a 0.50-percent fall predicted by a Dow Jones Newswires poll. It came after a revised rise of 2.0 percent in April. "Following the at times substantial gains of recent months, industrial production slowed slightly in May," the ministry said in a statement, but added that output remained on an "upward trend". Pointing to good business confidence indicators, the ministry predicted that "the recovery in the manufacturing sector should continue in a somewhat subdued manner". Also on Monday, official figures showed that German exports fell at a sharper rate than expected in May as weakness in several key markets including the eurozone choked sales. Excluding adjustments for seasonal factors, it recorded a trade surplus of 13.1 billion euros ($16.8 billion) in May. This was sharply lower than the 17.6 billion euros forecast by analysts polled by Dow Jones Newswires. Exports, the traditional driver of German economic growth, dropped to 88.2 billion euros versus 94.3 billion euros the previous month, the federal statistics office reported, citing the steepest month-on-month drop since December 2011. Imports also sank but at a lower rate, to 75.2 billion euros from 76.4 billion euros in April. In a year-on-year comparison, exports declined 4.8 percent and imports 2.6 percent. Figures adjusted for seasonal factors showed that the trade surplus fell to 14.1 billion euros from 17.5 billion euros in April. But imports saw a slight rise of 1.7 percent to 76.3 billion euros while exports dropped 2.4 percent to 90.4 billion euros. Christian Schulz at Berenberg Bank said that the May trade data spotlighted broad trends in the German economy but gave an upbeat outlook. "Robust domestic demand pushes up imports, while weakness in several export markets holds back export growth," he said. "But with US demand growing nicely, reinforced by the strong dollar, and the eurozone gradually emerging from recession, the outlook for German exporters could brighten again in the second half of the year, despite the emerging market wobbles." Germany narrowly scraped past recession in the first quarter when it booked 0.1 percent economic growth, after the economy had contracted by 0.7 percent in the final quarter of last year.