Prior to the publication of German industrial production levels, the median consensus forecast is calling for output to fall 0.3% in seasonally adjusted terms month-over-month, following July's 1.8% decline.

Annually, economists are expecting production in the industrial sector to have dropped 2.8% in August, down markedly from July's yearly fall of 0.6%.

"The downward trend in new orders has clearly been even more pronounced recently, Dresdner Kleinwort economist Rainer Guntermann said.

"Figures for manufacturing orders (in July) were particularly down, and given very general economic uncertainty, and uncertainty about financial market developments and corporate financing conditions, it should not come as a surprise if firms did start to lower their output plans accordingly," he said.

Early in September, the German Economic Ministry reported that factory orders had slipped 1.7% in July month-over-month, against expectations for a 0.3% rebound, following June's 2.9% contraction.

On an annualized basis, orders have fallen 0.7% in July despite expectations for a 2.2% decline. Meanwhile, June had seen factory orders fall 6.0%.

As a result, Guntermann said he is expecting German industrial output to have fallen 0.7% month-over-month, and 2.9% on a yearly basis in August.

"What we saw earlier this summer is that orders were already rolling over and industrial production held out," Guntermann explained, noting the order backlog over the middle of the year. "But this reached a level in production where we no longer see an upward trend, but rather a downward trend."

Looking ahead, the Dresdner Kleinwort economist also expected industrial production to continue its decline up until at least the end of 2008. "We are not forecasting a turnaround until some point next year."

Going against the median consensus, Capital Economics economist Ben May is expecting output in the industrial sector to rebound 0.5% in the period from July to August.

"One thing that the German government noted, after July's release, was that the 1.8% monthly fall was exaggerated by workers taking extra days off around the school holidays," May said. "So, it may well be that it was unusually weak and we see a bit of a rebound from that."

However, May added that if a rebound was seen, it would be due to a technical correction of July's distortion rather than the beginning of a recovery in the industrial sector.

"It's not a fundamental story about things picking up in Germany," May explained. "It's more of a temporary thing. The fact is, the overall survey data presents a fairly worrying picture for the nearer-term outlook."

May also did not expect much in terms of market reaction, even if his forecast is shown to be accurate, and highlighted the volatility of the monthly figures.

"The annual growth rate, even if there was a rise, would still be weak," May said.

By Todd Wailoo, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it

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