Germany’s factory output plunged 1.8 percent in May, the steepest plunge in over two years after holidays cut working hours while geopolitics affected sentiment and construction sector declined.
The weak data sent the euro spiralling downwards, and hinted at a much slower second-quarter growth in the world’s fourth-biggest economy. Germany’s economy grew by 0.8 percent in the first quarter, the quickest pace in three years.
The government expects the economy to grow by 1.8 percent this year due to stronger labor market and domestic demand. However, it is widely expected that the weak second quarter growth may weigh on the annual growth.
“It is likely that German growth will at best come in flat in the second quarter, which suggests the other euro countries and the ECB should not pin their hopes on the German engine of growth for the time being,” wrote Commerzbank economists in a note seen by Reuters.
The disappointing data fuelled speculation that the European Central Bank may be pressurized to ease its monetary policy further in the next few months in order to combat weak growth and disinflation.
The geopolitical factors that are thought to have hurt factory output include the potential oil price rally due to Iraqi violence and the Ukraine crisis. The construction sector recorded a decline of 4.9 percent in May after the unusually warm winter weather ensured more work was done in the first quarter.
In a separate report, the euro zone investor sentiment surged in July due to interventions by the European Central Bank and growing prospects for the global economy. The Sentix index survey, which is compiled by the Sentix research group to track morale among euro area investors, rose to 10.1 this month from 8.5 percent in June. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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