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German industrial output

falls again in June

BONN: German industrial output fell by 0.5 percent in June from May, the economics industry said on Friday, reinforcing the belief among economists that growth in Europe's powerhouse economy is slowing.

The ministry said output of the country's manufacturing industry fell by 0.4 percent in June from May. Capital goods and construction suffered the sharpest monthly falls of 1.8 percent and 2.2 percent respectively.

The output of West German industry, which accounts for about 90 percent of the whole German economy, slid by 0.4 percent after a 0.5 percent fall in May. In the east, the drop was more pronounced, with production shrinking by 2.8 percent.

The economics ministry again warned that the figures may be unreliable following a change in the way data is collected to fit in with European Union guidelines.

The ministry does not provide year-on-year changes but those calculated by economists show that June's output in the whole country was only 0.6 percent higher than June 1994. In May, the year-on-year rise had been 1.9 percent.

Economists had generally expected a small rise.

"Output was a bit weaker than forecast in June. The annual rate continued to fall indicating that output growth in clearly weaker nowadays than last year," said economists at UBS in Frankfurt in a comment.

"However, the level of the annual rate seems to understate the underlying development owing to data distortions."

Mark Cliffe of HSBC Markets in London said that although the figures were unreliable, the general picture was clear.

"Today's figures were weaker than expected and are in line with a steady stream of data which show economic growth is slowing," he said.

"The picture is consistent with the need for a further interest rate cut by the Bundesbank," he added.

Many economists expect a rate cut from the powerful central bank in September.

Economists say weak consuming spending and domestic investments combined with the effects of the strong rise in the value of the mark this year have combined to choke off a recovery that was steaming ahead until the end of last year.

Unemployment has also stagnated at the uncomfortably high level of 9.4 percent of the workforce, prompting unions to urge further rate cuts to stimulate the economy.

Earlier this week Economics Minister Guenter Rexrodt said he was sticking by the government's growth forecasts for the year in spite of a clearly sluggish first half. The government predicts pan-German gross domestic product growth of three percent next year and 2.5 to 3.0 percent next.

Rexrodt acknowledged tight government spending was also a brake on the recovery but described the current weakness in the economy as typical for the early phase of past recoveries.

Many economists have been revising down their forecasts for the year to below those of the government. Most think the economy bared expanded at all in the first two quarters.

Switches to a new method of calculation mean that growth data for the first two quarters have been delayed and will be published finally next month.-Reuter