9 May 2001, 18:10 FOCUS German output slump prelude to worse data, manufacturing recession
---- by STUART WILLIAMS ----
FRANKFURT (AFX) - A slump in German March output is a harbinger of
even worse data to come from Europe's largest economy, and has raised
the spectre of a full scale recession in the manufacturing sector,
economists said.
They added bad figures had been expected but the fall of 3.7 pct
surpassed even the gloomiest of expectations. Construction output dived
13.6 pct in what the finance ministry called a "genuine collapse",
while manufacturing output slumped 3 pct.
"The figures were really awful", said Rainer Guntermann at Dresdner
Kleinwort Wasserstein. "It is possible to say with truth that we have
the danger of a recession in the manufacturing sector", he said.
The disappointing data comes after an increase in seasonally
adjusted April umemployment and a slump in manufacturing orders earlier
in the week confirmed fears of a dramatic growth slowdown in Germany
this year.
Emmanuel Ferry at Exane said the output fall was the worst recorded
since January 1995.
"These figures are important because in my opinion they herald the
entry of Germany into an industrial recession, with production
shrinking in the first, second and third quarters", he said.
Economists added the figures have once more made clear that
Germany's export dependence makes it very vulnerable to the slowdown in
the U.S. economy.
"It is becoming increasingly clear that Germany cannot decouple
itself from developments in the world economy", said Rainer Sartoris at
HSBC Trinkaus & Burkhardt.
Today's data, and the disappointing figures that preceded it
earlier in the week, will not be enough to persuade the European
Central Bank to reduce interest rates tomorrow, however.
"The ECB will not be impressed by a single figure from Germany",
said DKW's Guntermann. "They are looking at the current inflation rate
and that unfortunately has been going up", he said.
The ECB has indicated it will not cut interest rates until euro
zone HICP inflation dips towards the stability ceiling of 2 pct,
despite the economic slowdown.
Economists said the task of helping the German economy through the
current slowdown is the responsibility of the German government, rather
than that of the ECB.
Julian von Landesberger, economist at HypoVereinsbank, said the
government has failed to make necessary labour reforms to stimulate the
economy.
"Today's figures are in a way punishment for the government which
has failed to push ahead with reforms when there was good growth last
year"
"If the ECB did make a move to counter what is a largely German
phenomenon it would create a very bad impression. It is up for Germany
to fix its economy", he said.
With an election due next year, however, economists said there is
little chance of chancellor Gerhard Schroeder making potentially
controversial labour market reforms.
"In Germany the problem is that an election is always round the
corner", von Landesberger said.
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