German industrial output posts steepest drop in a year

BERLIN (Reuters) - German industrial output fell in August at its fastest pace in a year, data from the Economy Ministry showed on Wednesday, suggesting Europe's largest economy may have lost momentum in the third quarter.

Factories produced 1.2 percent fewer goods than in the previous month, the ministry said, blaming some of the weakness on the large number of summer holiday days in the month.

It was the strongest fall since August 2014 and missed the Reuters consensus forecast for a rise of 0.2 percent. The output drop followed a sharp decline in August industrial orders data on Tuesday.

On a positive note, the July figure was revised up to a 1.2 percent increase from a previously reported rise of 0.7 percent.

"German industry is still struggling to gain momentum. Yesterday’s drop in new orders already signalled a note of caution," said ING economist Carsten Brzeski.

"Today’s weak industrial production data will again give rise to speculation that the German economy is suffering from the Chinese slowdown. In our view, however, there is no need to panic," he said, noting that industry had also posted disappointing numbers last summer.

The Economy Ministry said the late start to the summer holidays had contributed significantly to the fall.

"The ongoing positive mood among companies and good export development suggests a continuation of moderately positive industrial activity despite weaker incoming orders in July and August," the ministry said in a statement.

Recent data has painted a picture of waning demand from abroad, especially China and other emerging markets, with orders falling 1.8 percent in August.

This suggests that strong exports, which supported growth in the first half, could be losing steam.

But other economic indicators have been broadly encouraging with retail sales posting their strongest increase from January to August in more than 20 years, and business morale rising for the third month in a row in September.

(Reporting by Caroline Copley; Editing by Noah Barkin)