Financial thoughts

German industrial production unexpectedly rose in February, the third gain in as many months, as unusually warm temperatures boosted construction.

Output rose a seasonally adjusted 0.4 percent from January, when it gained 1.4 percent, the Economy Ministry in Berlin said today. Economists expected a 0.4 percent decline, the median of 41 forecasts in a Bloomberg News survey showed. From a year earlier, industrial production rose 6.1 percent when adjusted for the number of working days.

German construction emerged from a decade of decline in the past two years as pent up demand and low interest rates fueled orders for buildings. Still, output way wane in the months ahead as the euro's gain to a record $1.5903 last month damps exports and surging oil prices crimp companies' spending power.

“The importance of weather factors will increasingly wane over coming months,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. “I still expect this moderate upward trend to continue, but the dynamic will weaken in the second half of the year because of the global slowdown.''

The euro gained a fifth of a cent against the dollar after the release, rising to $1.5729. The currency traded at $1.5699 at 1:08 p.m. in Berlin after $1.5737 yesterday.

Construction output rose 3.7 percent in February from the previous month, today's report showed. Manufacturing production increased 0.3 percent and output of semi-finished goods rose 1.6 percent. Investment goods production declined 0.2 percent. January's gain in output was revised down from 1.8 percent.

Mild Winter

Mild weather allowed construction companies to work during much of the winter. At 3.6 degrees Celsius the average temperature in February was 3.3 degrees higher than the long-term average, according to the Offenbach-based German weather service DWD.

In a two-month comparison, which smoothes out monthly volatility, industrial production increased 2.4 percent in January and February from the previous two-month period.

German business and investor confidence unexpectedly rose in March. Germany's BDB banking association today maintained its growth forecast of 1.6 percent for this year, saying the economy is still “robust.''

Porsche SE, the maker of the 911 sports car, expects deliveries this year to be about the same as last year as economic growth in China, Russia and the Middle East offsets any declines in the U.S., the company said last month payday loans.

Robust Enough

Germany's economy is sufficiently robust to cope with the global slowdown and the outlook “remains positive,'' the DIW research institute said this month. The economy will expand 2 percent this year and growth will slow to 1.6 percent in 2009, the Berlin-based institute said.

“Industry is still working off the huge batch of orders from the fourth quarter,'' said Juergen Michels, an economist at Citigroup Inc. in London. “But we'll see a slowdown over the course of the year as global demand is cooling and due to the euro's strength.''

Hochtief AG, Germany's largest construction company, said March 26 that it expects profit to stagnate this year on slowing orders. The Essen-based company said that earnings from its U.S. building-arm will be unpredictable this year.

Factory orders fell 0.5 percent in February, a government report showed last week, and the International Monetary Fund cut its outlook for economic growth in Germany to 1.4 percent from 1.5 percent, Finance Minister Peer Steinbrueck said April 5.

U.S. Fallout

The fallout from record defaults on mortgages to U.S. households with a poor credit history has so far caused about $232 billion in losses and writedowns among the world's biggest financial companies, data compiled by Bloomberg shows. German banks have $312 billion in non-performing loans on their books after the financial crisis made them harder to sell, accounting firm Ernst & Young said last week.

“The recent weakening in factory orders as well as a smaller spring upswing as a result of the mild winter indicate that the upward dynamic of the industrial sector will be less strong in the months ahead,'' the Economy Ministry said a statement today.

Fuchs Petrolub AG, Germany's largest maker of lubricants, expects operating profit to grow at a slower rate this year as U.S. sales are hurt by the economic slowdown, the company said March 28. “This year it's going to be a struggle.''

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