Tuesday, February 11, 2003

German Output Falls Again

Figures released today by the German Finance Ministry show that German industrial output fell sharply in December, reinforcing the view that the eurozone's largest economy is now close to declaring its second recession in little over a year. Today's figures will again reopen the debate about whether the ECB rates are way too low for Germany's current situation, and about what specific weight to give the needs of the German economy in the eurozone calculations.

The finance ministry said on Monday that output fell 2.6 per cent month-on-month, offsetting November's rise and dragging the year-on-year rate down to 0.6 per cent. It was the sharpest monthly drop since February 1999, and comes hard on the heels of last week's bigger than expected decline of 4.1 per cent in industry orders for December. Economists said the data were consistent with continued stagnation, if not slight contraction, in the German economy and warned that the stronger euro could make matters worse. The euro has risen around 8 per cent against the dollar since the beginning of December and fears are rising it could soon hit German exporters by making their products uncompetitive. Economists said the poor output data, along with sagging consumer demand and the euro's appreciation, would increase pressure on the European Central Bank to lower interest rates. "The ECB may fear that a rate cut may drown in a sea of uncertainty... but the Germany economy is in need of a lifeline swiftly if it is not to sink further," said Daragh Maher of ING. Most economists expect the ECB, which cut rates by half a point in December to 2.75 per cent, to ease monetary policy in March or April.
Source: Financial Times

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