German economy continues to slide

The German economy continues its downward spiral, according to new data that shows industrial production is still sinking while inflation slowed for the third month in a row.

Official figures released yesterday in Berlin showed a 1.1 per cent drop in production from March to April, while inflation in May dropped to 0.7 per cent from 1 per cent in April.

The fall in inflation was caused by a drop in mineral oil prices, in particular a 6.9 per cent drop in heating oil, as well as a weak economy and a strong euro.

The president of the Bundesbank, Mr Ernst Welteke, said yesterday that he expected "close to zero" GDP growth in the second quarter and year-on-year growth of not more than 0.2 per cent.

"But there is no reason to talk about a recession or recessionary developments," he said.

A day earlier, his chief economist, Mr Hermann Remsperger, said Germany faced risks "that could prompt deflationary tendencies in a worst-case scenario".

Nevertheless, the Bundesbank doesn't expect "a significant and persistent drop in prices and economic activity," Mr Remsperger said.

The International Monetary Fund (IMF) said last month that Germany was facing a "high risk" of deflation.

A sector-by-sector breakdown of industrial production revealed that output in the manufacturing sector fell by 1.1 per cent in April from March, while production in the energy and construction sectors dropped by 0.4 per cent and 0.6 per cent respectively.

"Manufacturing surveys point to more weakness ahead.

"The data underlines our call for a further contraction in the German economy in the second quarter," said one economist in Frankfurt.