German industrial output edges up less than forecast in October

By Michelle Martin

BERLIN (Reuters) - German industrial output inched up in October after two months of declines but the lower-than-expected reading suggested weak demand from emerging markets is taking its toll on a key sector of Europe's largest economy.

Production climbed by 0.2 percent on the month, data from the Economy Ministry showed on Monday. While that missed expectations in a Reuters poll for a 0.7 percent rise, it represented a rebound after a 1.1 percent fall in September -- output's steepest drop in more than a year.

The Economy Ministry said the positive output reading at the start of the first quarter was "the first step towards overcoming the weak patch of the previous months".

Carsten Brzeski, chief economist at ING-DiBa, said the data provided little relief and indicated that slowdowns in China and other emerging market economies are hurting the German economy, which has already seen net foreign trade drag on growth in the third quarter.

"Despite the October increase, new orders are still far below their early-summer levels, adding to evidence that the industry's safety net of low inventories and filled order books has become thinner," he said.

Monday's data came on the heels of other data which had painted a rosier picture of the German economy. Orders have posted a healthy increase thanks to rising euro zone demand, unemployment is at its lowest level since reunification in 1990, the private sector is growing and businesses are feeling upbeat.

A breakdown of the industrial data showed a 5.9 percent decline in monthly energy production holding overall output back in October. The Economy Ministry said this was due to a windy and sunny summer having boosted renewable production significantly in previous months.

Factories that make intermediate and consumer products also reported weaker production figures. But capital goods were a bright spot, with 2.7 percent more of these rolling off production lines in Germany than in the previous month.

The outlook for the industrial sector looks bleak too. Deutsche Bank expects output to grow by around 0.5 percent this year and get close to stagnation next year despite the weak euro helping exports to the United States and Britain.

The Bundesbank said on Friday that robust domestic demand was underpinning growth in Germany as consumers draw confidence from the strong jobs market and rising disposable incomes. But it warned weak appetite from emerging markets was hurting foreign trade and said if this continued, it could hit growth.

The Bundesbank said it expected the German economy to expand by 1.7 percent this year.

(Additional reporting by Joseph Nasr; Editing by Catherine Evans)