German industrial production rose at the fastest pace in nearly 16 years in May, official data showed on Wednesday, bolstering hopes Europe's biggest economy may be starting to recover from a deep recession. The rise was largely due to a jump in car sales, prompted by a government scheme, but analysts said even with that stripped out the figures were strong.
Industrial output rose by 3.7 percent on the month in May. A Reuters poll had pointed to a rise of 0.5 percent after a fall in April. May's rise was the strongest gain since August 1993, when output climbed 4.1 percent, Bundesbank data showed. The stronger-than-expected data helped push the euro to a session high against the dollar, turning slightly positive on the day.
"A recovery phase is on the horizon but we shouldn't be too euphoric," said Sal Oppenheim economist Norbert Braems. "In the second quarter, the overall economy will likely still shrink a bit. We could see GDP in positive territory by year's end." Germany, the world's biggest exporter of goods since 2003, is expected to suffer an economic contraction of around six percent this year, dragged down by a slump in exports.
Yet measures of investor and corporate sentiment have rallied in recent months, raising hopes that the economy could start to stage a timid recovery. Manufacturing orders data, released on Tuesday, had boosted hopes for a recovery in output. Orders surged at their fastest pace in nearly two years in May due to stronger demand both at home and abroad.
"Given firmer orders, the prospects for a positive development in industrial production have improved," the Economy Ministry said in a statement on Wednesday after it released the output data. April output was revised down to show a drop of 2.6 percent on the month from a previously reported fall of 1.9 percent.
Manufacturing output drove the seasonally-adjusted rise, climbing 5.1 percent and offsetting a decline of 3.2 percent in construction output and a fall of 3.8 percent in energy production. The Economy Ministry said an increase in production of cars and car parts was driving the rise in manufacturing output. Car sales have risen sharply in Germany as motorists cash in on government incentives to junk old cars and buy new ones. New car registrations swelled 40 percent in June.
Some German companies have expressed confidence in a long-term recovery in manufacturing. German chemicals trade group VCI said on Wednesday it expected the worst full-year drop in production output in more than 30 years in 2009 but the start of a recovery was imminent in the second half.