German industrial output grew strongly in June, reinforcing the view Europe's largest economy has exited a soft patch, and giving the government a fillip as it gears up for a planned September election. Preliminary Economy Ministry data on Friday showed that output rose by 1.4 percent month-on-month, the second sizeable gain in the past three months and the biggest since January. Economists had forecast a rise of only 0.3 percent.
"It's a fine number," said BHF Bank economist Gerd Hassel. "It's a great signal for the development of the economy in the third quarter. Not only have production and orders clearly improved, the sentiment indicators are also pointing up."
Data on Thursday showed manufacturing orders in June posted their third big gain in four months, while closely-watched gauges of investor and business confidence have also improved significantly over the past two months.
With Germany due to go to the polls on September 18, the ruling Social Democrats (SPD) have seized on the data after months of watching their ratings slide in the face of incessant reports of record unemployment and weak consumer spending.
"We are seeing the first successes in the economy," said Chancellor Gerhard Schroeder at an election planning meeting in Kassel. "We are seeing massive growth in capital goods investment...also, consumption is picking up," he said.
The orders data were boosted by an increase in demand for domestic capital goods of more than eight percent in June. Total production of capital goods increased by 3.5 percent from May.
Economy Minister Wolfgang Clement said the data meant the chances of a sustained pick-up had "increased palpably".
With Schroeder's conservative challenger Angela Merkel faltering in recent public appearances, the SPD has narrowed the big gap on the opposition slightly. Latest polls show the opposition's lead over the SPD has shrunk to 13-17 points.
Despite the positive output data, most economists were reluctant to forecast an increase in German gross domestic product in the second quarter.
The mid-range forecast of a Reuters poll of 34 economists this week was for no growth compared with the first quarter, when the economy grew one percent.
Nevertheless, Commerzbank economist Ralph Solveen said thanks to the new data there was now a good chance the second quarter figure, to be released by the Federal Statistics Office on Thursday at 0600 GMT, would be "slightly positive" .
Reuters calculations based on official data showed that industrial output increased by 0.5 percent quarter-on-quarter in the April-June period. This compares with a 0.9 percent gain during the first three months of 2005.
With retail sales declining in the second quarter, much will depend on June trade data, due to be released on Tuesday.
Although exports continued to rise during the April and May period, growth was outpaced by import expansion, meaning the net trade effect could be negative on the second quarter GDP figure.
A breakdown of the June output data showed manufacturing production rose by 1.3 percent and construction by 4.7 percent. Production of consumer goods fell by 0.3 percent, although output of durable consumer goods was up 8.2 percent.
According to the latest Bundesbank data, domestic orders for consumer goods rose for an unprecedented ninth straight month in June. Car registrations in June and July also grew strongly. All this has spurred hopes of a domestic pick-up.
However, Lehman Brothers economist Phyllis Papadavid warned that with exporters exposed to a strengthening euro and oil prices still at record highs above $60 a barrel, big risks remained.
"We will probably see strengthening production in July and August, but beyond that we remain cautious," she said.
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