German industrial production, exports down in June

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By GEIR MOULSON, Associated Press

BERLIN (AP) — German industrial production and exports dropped in June, official data showed Wednesday — underlining concerns that Europe's debt crisis is increasingly weighing on the region's biggest economy.

Industrial production was down 0.9 percent in June compared with the previous month, the Economy Ministry said. That figure, which was roughly in line with economists' expectations, followed a 1.7 percent increase in May — revised upward from the initial reading of 1.6 percent. Production of investment goods such as factory machinery was down 1.6 percent in June.

Earlier this week, official figures showed that industrial orders dropped by an unexpectedly large 1.7 percent in June, led by a slide in orders from other countries that use the euro.

The German economy, Europe's biggest, so far has been relatively unaffected by the debt crisis afflicting its eurozone partners.

But second-quarter output figures due next week are expected to show growth slowing from the healthy first-quarter figure of 0.5 percent, and business confidence is fading.

Production was "relatively robust" in the second quarter but future is "restrained" given recent order figures, the Economy Ministry said in its statement Wednesday.

Also Wednesday, the Federal Statistical Office said exports — a key motor of the German economy — were down 1.5 percent in June compared with the previous month at €92.3 billion ($114.5 billion) in figures adjusted for seasonal and calendar effects. That followed a 4.2 percent increase in May.

Imports were 3 percent lower, following a 6.2 percent increase the previous month.

In year-on-year terms, the statistical office said that exports in June were up 7.4 percent, fueled by a 19.8 percent increase in demand from countries outside the European Union. In contrast, exports to other countries that use the euro were down 3 percent.

For the year's first half, total exports were up 4.8 percent compared with 2011. Demand from outside the EU rose 11.1 percent, while exports to eurozone partners declined by 1.1 percent. Germany's trade surplus stood at €17.9 billion in June, up from €15.6 billion in May.

Andreas Rees, an economist at UniCredit in Munich, forecast quarter-on-quarter growth of 0.2 percent — which would contrast with recessions in several other economies in the 17-country bloc that uses the euro.

"The million-euro question is whether and how long German companies and consumers can keep the pace in the face of eurozone turbulence," Rees said. Specifically, he said, much depends on whether further eurozone weakness will be compensated for by higher U.S. and Chinese demand, and whether strong internal demand can shield Germany's economy.

"We still think that both questions can be answered with a 'yes' but uncertainties and downside risks to our call have significantly increased of late," Rees wrote in a research note.

Germany is one of the few eurozone countries that still enjoys the top AAA rating from all three major credit rating agencies. On Wednesday, Fitch Ratings reaffirmed that rating and its stable outlook.

"The affirmation reflects Germany's longstanding credit strengths and robust economic performance over the past two years," the agency said in a statement.

Standard & Poor's also affirmed its top credit rating and outlook on Germany last week, but rival Moody's last month lowered its outlook on the country to "negative," citing its concern over Germany's exposure to risks posed by Europe's ongoing crisis.

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