German industrial output declines unexpectedly in May

By Maria Martinez

(Reuters) - German industrial production unexpectedly fell in May, adding to signs that manufacturing in Europe's largest economy will not recover in the coming months.

Industrial production fell in May by 2.5% compared to the previous month, the federal statistics office said on Friday. Analysts polled by Reuters had predicted a 0.2% rise.

"There is increasing evidence that the economy will only see a moderate recovery at best in the second half of the year," Commerzbank's senior economist Ralph Solveen said.

The statistics office also revised its data for April to a 0.1% increase on the month, from a provisional 0.1% decline.

"These numbers aren’t pretty," said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. "We think production rebounded in June, but not enough to prevent a fall over the second quarter as a whole."

A less volatile three-month comparison showed that production in March to May remained on the level of the previous three months.

Demand remains weak. German industrial orders fell 1.6% in May on the previous month, data showed on Thursday, posting its fifth consecutive drop.

"After an encouraging start to the year, the German economy has not been able to meet the high expectations and is losing steam again far before reaching full speed," said Carsten Brzeski, global head of macro at ING.

Although today's numbers have increased the chances for the German economy to fall back into negative territory in the second quarter, it would be premature to give up on the German economy, the economist said.

"Strong wage growth should fuel a cautious recovery in private consumption, and even though the inventory cycle hasn’t turned yet, it won't take a lot to see at least a weak rebound in industrial activity later this year," Brzeski said.

(Reporting by Maria Martinez and Paolo Laudani, Editing by Rachel More, Friederike Heine, William Maclean)