German industrial production declined the most in 10 months in June as companies received fewer orders from abroad for goods such as factory machinery. Production at factories, construction sites, utilities and mines fell 1.9 percent from May, when it rose a revised 0.9 percent, the Economics and Labor Ministry in Berlin said in a faxed statement. Economists had expected a drop of 0.1 percent, according to the median of 35 forecasts in a Bloomberg survey.
BASF AG, the world's biggest chemical company, and Adidas- Salomon AG, the second-biggest maker of sporting goods, raised their profit forecasts this week, citing sales outside Germany. A drop in June foreign orders reported by the government yesterday suggests that export growth may have peaked. ``There may have been a correction after the strong month before,'' especially after the drop in orders, said Bac Van Luu, an economist at Landesbank Baden-Wuerttemberg in Stuttgart. Also, ``the carryover from export growth to consumer spending is very weak. It should be stronger'' when compared with past recoveries.
The Economics Ministry said yesterday that June factory orders fell 3.5 percent, led by an 8.8 percent drop in foreign demand. Evidence of a pick up in domestic demand remains scarce, with the unemployment rate rising to an 11-month high of 10.6 percent in July and consumer confidence falling to a one-year low. Germany's benchmark DAX stock index dropped 1.5 percent today to 3772.65 at 12:10 p.m. in Frankfurt. The euro was little changed against the dollar at $1.2057.
U.S. Growth
Production declined in all components but construction, from a 2.8 percent monthly decrease in intermediate goods, which include metals, to a 3.1 percent slump in output of investment goods. Building output rose 0.4 percent. The ministry said it expects a ``strong upward correction'' for the figures, especially for manufacturing. In a two-month comparison, which smoothes out short-term swings, today's report showed industrial production rose 0.6 percent in May and June from the previous two-month period, the ministry also said.
World economic growth, powered by the U.S. and Asia, boosted the German economy in the first quarter and helped companies such as Bayerische Motoren Werke AG to increase earnings. The world's second-biggest maker of luxury cars on Wednesday reported its biggest quarterly profit ever. ``Exports are carrying the weight in machine tools as well, especially to Asia and America,'' Ruediger Kapitza, chief executive of Gildemeister AG, a machine-tool maker which reported a second-quarter profit after a loss in the same period a year ago. ``Without exports, we wouldn't have just stagnated in Europe, we would have declined.''
Below Strength
U.S. growth cooled to 0.8 percent in the second quarter from the first three months, after 1.1 percent in the previous quarter. U.S. service-industry growth accelerated in July and factory orders and production strengthened, signs the economy accelerated after the second-quarter slowdown. The number of Americans filing new claims for jobless benefits fell last week to the lowest in a month, government figures showed yesterday. That would be good news for Germany, which sends about a 10th of its exports to the world's biggest economy. Germany's economy is ``far from operating at full strength'' as companies hesitate to invest and consumers cut spending, the Organization for Economic Cooperation and Development said yesterday. Persistent unemployment is damping consumer sentiment and business confidence remains ``volatile,'' the Paris-based organization said. ``While there is no reason to abandon the expectation of a sustained recovery, domestic demand has been lagging exports for an unusually long period of time,'' said Rainer Guntermann, an economist at Dresdner Kleinwort Wasserstein in Frankfurt.
ECB Interest Rates
Supporting the recovery, the ECB yesterday left its benchmark lending rate at a six-decade low of 2 percent for a 15th month. The International Monetary Fund, which this week raised its growth forecast for the dozen euro countries to 2 percent from 1.7 percent, has urged the bank to keep rates low until consumer spending in the region picks up. Investors have pared expectations that the ECB will raise rates by the end of the year, futures trading shows. The yield on the December Euribor interest-rate future was 2.24 percent at 12:06 p.m. in Frankfurt, down from 2.54 percent on June 14. The contracts settle to the three-month euro area inter-bank offered rate for the euro, which has averaged 15 basis points more than the ECB's key rate since the euro's launch in 1999. ///www.bloomberg.com