German industrial output falls unexpectedly in July

By Maria Martinez

Sept 7 (Reuters) - German industrial production fell unexpectedly in July, dragged down by a sharp drop in car manufacturing, and economists do not expect the recent pickup in factory orders to boost output before the fourth quarter.

Industrial production fell by 1.1% compared to the previous month, the federal statistics office said on Monday.

Analysts polled by Reuters had predicted a 0.1% rise.

July's decline was mainly due to a 9.2% decrease in production in the automotive industry, driven by what the German Automotive Association VDA said was a multi-week production shutdown, the statistics office said.

"Industrial economic activity is crawling along," said Jupp Zenzen, economic expert at the German Chamber of Commerce and Industry DIHK, noting that only energy generation and the construction sector are showing growth.

The 4.7% increase in energy production - driven by electricity generation from wind power and photovoltaics - had a positive effect on total production.

"To some extent, this July data already provides some flavour of the economic impact of the heatwave and drought: production in almost all sectors was down, but energy production in renewables was clearly up," said Carsten Brzeski, global head of macro at ING.

Outside of industry, construction output increased by 0.9% on the month.

INDUSTRIAL ORDERS WILL REMAIN SLUGGISH

Low water levels on the Rhine are expected to continue curbing production in August and September, said Dirk Schumacher, chief economist at KfW.

"The German economy is likely to expand at a slower pace in the third quarter than it did in previous quarters," said Ralph Solveen, senior economist at Commerzbank.

Industrial orders rose by 2.5% in July from the previous month on a seasonally and calendar-adjusted basis, the statistics office said on Friday.

But industrial production has so far been unable to benefit from the positive development in incoming orders since the start of the year.

 An investment surge, made possible by a special €500 billion ($580 billion) infrastructure fund and an exemption from debt rules for defense spending approved last year, is expected to boost production.

"While the stimulus from the fiscal package is evident, it is not leading to better capacity utilization," said Alexander Krueger, chief economist at Bethmann Hal.

The signals from order intake and sentiment indicators point to an underlying improving trend, although this will likely not be clearly reflected in the production figures until the fourth quarter, said Schumacher.

After revision of the provisional data, production in June remained at the level of the previous month, instead of rising by 0.2%. 

The less volatile three-month-on-three-month comparison showed that industrial production was 0.4% higher in the period from May to July than in the previous three months, showing meager growth. 

Compared with July 2025, production was 1.6% lower year-on-year after adjustment for calendar effects.

Following stronger than expected growth in the second quarter, these data now signal downside risks to GDP growth in the third quarter, especially when combined with the plunge in retail sales in July, said Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics. 

($1 = 0.8605 euros)

(Reporting by Tristan Veyet in Gdansk and Maria Martinez in Berlin; Editing by Linda Pasquini and Toby Chopra)