Second fall in German imports as sentiment worsens

A SECOND fall in German imports in three months sent a worrying sign that even the domestic mood in the euro zone’s last bastion of economic hope may be weakening under the pressure of the bloc’s deepening debt crisis.

Exports and industrial output also dropped in June, data showed, after a turn for the worse in surveys of economic sentiment over the past month as retail sales dipped and unemployment rose.

Production fell 0.9 per cent on the month on a seasonally adjusted basis, driven by declines in manufacturing, consumer goods and capital goods output, and adding to a new central bank forecast that put France in recession in the third quarter.

“With the supposedly ultracompetitive German manufacturing sector in recession, the omens for the rest of the euro zone economy are extremely worrying,” said Jonathan Loynes, chief European economist at Capital Economics. “The annual rate remained steady at -0.3 per cent, but business surveys such as the PMI (purchasing managers index) point to much steeper rates of contraction over the coming months.”

Germany’s industrial output remains relatively robust compared to other euro zone countries like Spain, where calendar-adjusted industrial output fell for a 10th straight month to 6.3 per cent year-on-year in June.

But Germans purchased 2.8 per cent fewer goods from their European contemporaries in June than a year ago, bad news for firms relying on demand from the bloc’s richest consumer market.

On a seasonally adjusted month-on-month basis, imports fell 3.0 per cent in June, reversing a 6.2 per cent gain in May and falling much more sharply than the 1.5 per cent drop forecast.

While the German economy has traditionally been export-driven, many economists expect private consumption to be the most important driver of growth this year as Germans benefit from low unemployment and higher pay in the chemical and engineering sectors following successful wage negotiations. – (Reuters with additional reporting from Bloomberg)