Dip in German industrial output casts doubt on strength of recovery

German industrial output edged down in August following three months of relatively strong increases, suggesting the recovery in Europe's largest economy from the coronavirus shock is starting to lose steam.

Industrial output fell by 0.2 per cent on the month after an upwardly revised rise of 1.4 per cent in July and a jump of 9.3 per cent in June, figures released by the Federal Statistics Office on Wednesday showed. A Reuters poll had forecast an increase of 1.5 per cent for August.

Factories churned out fewer capital goods and consumer goods, with the slump particularly deep in vehicle production.

"At least a part of the fall in car output was due to more companies implementing their summer shutdowns in August this year," Andrew Kenningham from Capital Economics said.

This one-off effect coupled with rising orders and upbeat sentiment surveys could suggest that industrial output will rise again in coming months, albeit at a probably slower pace.

The economy ministry said industrial output now stood at almost 90 per cent of pre-crisis levels in the fourth quarter of 2019.

"Since the easing of lockdown measures in April, there has been an ongoing recovery since May, even if there was a slight decline in August," the ministry said.

The catch-up process is likely to continue in light of improved business sentiment, rising orders and a decline in the use of job protection schemes among manufacturers, it added.

The German economy contracted by a record 9.7 per cent in the second quarter as household spending, company investments and trade collapsed at the height of the pandemic.