By Michael Nienaber
BERLIN (Reuters) - Plunging car output drove an unexpected drop in production of German goods in January and an industry body cut its 2019 growth forecast, adding to signs that trade tensions and unease about Brexit are weighing on Europe's largest economy.
A global slowdown, tariff disputes sparked by U.S. President Donald Trump's 'America First' policies and a potentially chaotic British departure from the EU threaten to bring a decade-long expansion in export-reliant Germany to an end.
The same factors are impacting the rest of the European Union, and Monday's data added weight to a dovish policy shift by the European Central Bank last week as safe-haven bonds rose.
"Industrial production is hard data and it is really cementing the impression that the European economy is slowing down," said Mizuho rates strategist Antoine Bouvet.
"It is lending credibility to the view that the slowdown is not temporary."
Germany's BDI industry association cut its 2019 economic growth forecast to 1.2 percent from 1.5 percent.
"The economy is continuing to lose momentum, mainly for reasons related to the external environment," its managing director Joachim Lang said. "Disruptions in trade with Britain or the United States could bring us dangerously close to zero growth."
German business daily Handelsblatt said on Monday the federal government had cut its in-house GDP growth outlook to 0.8 percent from 1.0 percent, the second reduction in less than two months.
The Economy Ministry and the Finance Ministry declined to comment. The government is expected to update its forecast in April.
GATHERING CLOUDS
Industrial output dropped 0.8 percent in January, well below market expectations for a rise of 0.5 percent, Germany's Statistics Office said.
The figure for December was sharply revised up, however, to a 0.8 percent increase from a previously reported 0.4 percent drop, and the euro recovered ground after a brief dip.
Automobile production fell by 9.2 percent on the month in January, separate data from the Economy Ministry showed. It blamed special factors such as strikes at suppliers and a switch to new brands for the weak performance.
German carmakers are also at the sharp end of a sectoral dip driven by a slowdown in China, a plunge in demand for diesel vehicles and costly investments in electric as well as self-driving cars.
"The headwinds from abroad are hitting the German economy particularly hard," Sophia Krietenbrink from the DIHK Chambers of Industry and Commerce said.
Seasonally adjusted exports were flat month-on-month in January - compared to a forecast 0.5 percent contraction - while imports rose 1.5 percent, the data showed. That meant the trade surplus narrowed to 18.5 billion euros ($20.80 billion).
The unexpectedly weak data suggests the German economy is likely to post only meager growth in the first quarter after it barely avoided a recession - defined as two consecutive quarters of contraction - in the second half of last year.
The slowing economy means tax revenues are likely to be lower than expected this year, which could increase tensions in Chancellor Angela Merkel's governing coalition over spending priorities.
ING economist Carsten Brzeski said that the sharp revisions of monthly data, stabilizing domestic orders and solid fundamentals suggested the industrial slowdown was reaching its low point.
"But if the search for a bottom takes too long, the German government should start considering additional fiscal stimulus," he said.