German industrial production fell more than expected in March as cold weather stung construction output, dragging down the overall figure and hardening scepticism about the outlook for the second quarter. Industrial production fell by a seasonally-adjusted 0.8 percent from February, the second straight decline, as output in the building sector suffered its second big drop in as many months, preliminary Economy Ministry data showed on Monday. Economists polled by Reuters ahead of the data had forecast on average a monthly dip in output of 0.4 percent.
"The bad weather conditions in February and March were the key drivers behind this," said HVB Group economist Andreas Rees.
Construction output fell 10.6 percent after diving by 13.6 percent in February, with energy production down by 4.2 percent.
Germany's BDZ cement industry association said on Monday it was struggling to cope with high fuel and electricity prices and that sales would probably fall this year as the recession dogging the construction sector since 1995 continued.
However, Reuters calculations based on Bundesbank data indicated output had still climbed from the previous quarter by around one percent in the first three months of 2005.
Economists said the cold weather's influence on output meant the data were not as bad as they looked, given that some key components of the index showed growth over March.
After it contracted in the second half of 2004, most analysts believe the German economy grew around 0.5 percent or more in the first quarter of this year.
The Federal Statistics Office is due to release a flash estimate of German gross domestic product during the January-March period on Thursday at 0600 GMT.
Despite the optimism about the first quarter, unemployment is still stuck close to post-war highs, while business sentiment in the export-driven economy has fallen for three months amid soaring oil prices and a persistently strong euro.
A Bundesbank breakdown of the data showed that output in Germany's key chemical industry had fallen for the first time in six months, but production in mechanical engineering rose by 4.4 percent, the second biggest monthly rise since June 2002.
And although output of consumer goods as a whole fell 0.6 percent during March, production of durables rose by one percent, the third sizeable rise in the last four months.
With orders from within Germany for consumer goods also rising for the past half year, economists are increasingly confident that consumer spending, long the Achilles' heel of Europe's largest economy, is showing signs of firming up.
The Economy Ministry said the unexpectedly large 2.2 percent gain in manufacturing orders in March was a positive sign for output in coming months. Postbank economist Brian Mandt agreed.
"The data do vary, but it does indicate that the domestic economy is perhaps a little stronger," he said. "There is at least a ray of hope."
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