German industry makes robust start to second-half, but clouds on horizon

BERLIN (Reuters) - German industrial output rose in July at its fastest pace so far this year, suggesting the engine room of Europe's largest economy made a robust start to the second half despite a turbulent global backdrop. Factories produced 0.7 percent more goods than in the prior month, the Economy Ministry said on Monday. That was the strongest increase since December, but came in below the Reuters consensus forecast for a 1.0-percent rise. Commerzbank economist Christoph Weil said that while the figures looked solid at first glance, they were helped by a late start to the summer holidays. "The crisis in emerging markets is also slowly becoming perceptible here," said Weil. "With a certain time lag that is noticeable in our economy. We will likely also be burdened in the coming months. There are dark clouds on the horizon." On Friday, the ministry reported figures showing a bigger-than-expected drop in industrial orders in July on lower foreign demand, pointing to some weakness in the export engine that supported German growth in the first half of this year. Other recent data from Germany has been broadly positive, with German retail sales climbing at the strongest pace in nine months in July and private sector growth picking up. In August, business morale rose, but the exports that drove a second-quarter expansion may falter later this year if China's slowdown hits the economy, the Ifo economic institute said. ING economist Carsten Brzeski described the output figures as "solid but not spectacular", though noted that they came against the backdrop of the Greek crisis and concerns about a slowdown in China. "Nothing spectacular but also nothing to worry about," he said of the data. "Maybe given the more challenging circumstances of the last months, a solid start is already a success." The output figure for June was revised up to a 0.9-percent drop from a previously reported 1.4-percent fall, and the ministry said the outlook for German industry remained positive. "Overall, the slightly positive trend in the industrial sector is continuing," it said in a statement, adding that order books were filled thanks to strong demand from abroad and that companies remained confident. (Reporting by Michael Nienaber and Rene Wagner; Writing by Paul Carrel; Editing by Toby Chopra)

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