Foreign demand for German goods held near record levels in July, boosting hopes exports can continue to power growth, but the country's manufacturing sector got off to a slower start than expected in the third quarter.
Germany's trade surplus swelled in July as imports weakened after shooting up in June, Federal Statistics Office data showed on Friday. Meanwhile, industrial output rose 0.1 percent in July after a decline in June, official figures showed.
Exports fell slightly in July compared with June, by an adjusted 0.1 percent on the month, but remained close to historical highs. In June they rose by 1.9 percent.
By contrast, imports declined by 2.4 percent in July, after posting their biggest rise in nearly five years in June. Analysts said it was hard to tell how well the economy would perform in the second half of 2007 because of uncertainty over recent financial market turmoil, but Bundesbank President Axel Weber was confident German growth had not peaked yet.
"I see a good chance consumption will contribute to growth in the second half of the year now that the distorting effect of (January's 3 percentage point) VAT increase is behind us. "The more favourable development of more broad-based growth is more likely ahead of us than behind," he said in Frankfurt.
A Reuters poll had forecast exports would increase by 0.8 percent on the month and imports decrease by 0.1 percent. Output was expected to rise by 0.8 percent in July. In seasonally adjusted terms the trade surplus grew to 16.5 billion euros from 15.0 billion in June, the figures showed.
Some doubts have surfaced about growth over the months ahead, with manufacturing orders posting their biggest monthly decline in July since reunification nearly 17 years ago. Corporate insolvencies increased slightly in June, the first rise since 2005, the Statistics Office said on Friday. Labour costs remained contained, however, increasing by 0.9 percent on the year in the second quarter, separate data showed.
The government has repeatedly insisted Germany should not be badly affected by recent turmoil on financial markets. Steady job creation and rising wages have raised hopes that private consumption, long a weak point in the economy, will pick up the slack if foreign demand cools for German goods.
"There's no need to draw negative conclusions about how domestic demand is progressing (from the import decline)," said Ralph Solveen, an economist at Commerzbank in Frankfurt. Surveys of corporate Germany remain upbeat, although recent indicators have suggested manufacturing growth is easing.
An NTC/BME survey of purchasing managers showed Germany's manufacturing sector expanded at its slowest rate in 1-1/2 years in August, as demand growth from foreign clients eased. Many firms continue to profit from foreign demand, however.
German industrial group Siemens said last month a consortium it was leading had won a 520 million-euro ($701 million) contract to build a power plant in Singapore.
Compared with July 2006, exports were up by 11.8 percent, while imports rose by 6.3 percent. During the first seven months of the year, exports climbed by 11.3 percent and imports increased by 7.4 percent, the Office said. A breakdown of the July data showed that exports were up most strongly to European Union countries outside the euro zone. Export growth was weakest to non-EU countries.
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