Azernews.Az

By Bloomberg

German industrial output grew more than forecast in July, signaling that Europe's largest economy is headed for a third-quarter rebound.

Production, adjusted for seasonal swings, rose 1.9 percent from June, when it expanded a revised 0.4 percent, the Economy Ministry in Berlin said today. Economists predicted a gain of 0.4 percent, according to the median of 34 estimates in a Bloomberg News survey. Production climbed 2.5 percent from a year ago when adjusted for working days.

The German economy, which shrank 0.2 percent last quarter, is key to reviving the 18-nation euro area as growth stalls and confidence is undermined by crises in the Middle East and Ukraine. The European Central Bank yesterday cut interest rates to a record low and announced asset purchases in a bid to boost inflation and restart the recovery in the region.

"While there has been a lot of uncertainty, German industry is generally good," said Evelyn Herrmann, European economist at BNP Paribas SA in London. "With factory orders up in July, I think the downside risks are off."

A report yesterday showed manufacturing orders surged 4.6 percent in July, the most in more than a year, as demand for investment goods from outside the euro area jumped. At the same time, a gauge of manufacturing activity dropped to the lowest level in 11 months in August.

Today's report showed industrial output in July was led by a 5 percent jump in investment goods and a 1.7 percent gain in construction. Production of intermediate goods rose 0.8 percent and consumer goods climbed 0.1 percent. Energy output slid 3.7 percent.

ThyssenKrupp AG tripled earnings in the second quarter and is expanding its elevator, industrial and components units amid weak steel prices. Bilfinger SE cut its full year profit targets for a third time this year on "difficult" markets for energy and European oil and gas.

The European Commission is preparing another round of penalties to punish Russia for backing rebels in eastern Ukraine that may involve the country's access to capital markets. German Chancellor Angela Merkel signaled this week that her country is ready for any economic fallout from measures taken against Russia.

The Bundesbank has warned that geopolitical tensions may impede a return to growth in the second half of the year. In June, it forecast growth of 1.9 percent this year and 2 percent in 2015.

In an effort to bolster growth and fuel inflation, ECB President Mario Draghi unveiled a plan to buy asset-backed securities and covered bonds yesterday. He also cut the benchmark interest rate to 0.05 percent and lowered the deposit rate to minus 0.2 percent, three months after presenting a targeted lending program aimed at funneling credit to the real economy.

"We took into account the overall subdued outlook for inflation, the weakening in the growth momentum in the recent past," Draghi said. "Decisions, together with the other measures in place, have been taken with a view to underpinning the firm anchoring of medium to long-term inflation expectations."