German industrial production posts its steepest fall in 23 months in July, in a further sign of faltering output. As David Pollard reports, there are mounting concerns over Europe's largest economy as its leaders begin to eye next year's federal elections.
If losing a local election to an anti-immigration party was a small headache for Angela Merkel, the economy is fast becoming a migraine. New data shows the biggest fall in industrial production in nearly two years. A surprise drop of 1.5 per cent in July capping a run of weak numbers. SOUNDBITE (English) IG SENIOR ANALYST, CHRIS BEAUCHAMP, SAYING: "You can debate whether the steady rise of the euro over the last 8 or 9 months has quite a bit to do with that and will hurt German exports, you can talk about economic disruption, the uncertainty caused by Brexit, but the strongest sword for the ECB in terms of looking at the euro zone economy seems to be broken." Merkel's fortunes still appear intact despite her party coming third in the weekend's state ballot - though increasingly they do turn on the divisive issue of immigration. The chancellor now launching a spirited defence of her pro-refugee policies in parliament. With in the background - the hint of tax cuts to come - after next September's federal elections. An apparent sweetener for voters - of up to 15 billion euros - outlined by her finance minister on Tuesday. New measures needed, he said, where old ones were failing. (SOUNDBITE) (German) GERMAN FINANCE MINISTER WOLFGANG SCHAEUBLE, SAYING: "Reform, improving frameworks, investment. Those are the only answers that have a chance of succeeding in the face of another big and justified concern: interest rates that are far too low." SOUNDBITE (English) IG SENIOR ANALYST, CHRIS BEAUCHAMP, SAYING: "While they might be reluctant to do fiscal stimulus, and while the Germans don't spend as much as we'd like them to, certainly any tax break that puts money directly into the pockets of euro zone consumers, especially in Germany, is to be welcomed - especially of course given the fact that ECB QE doesn't appear to be having too much of an impact on the broader economy." Which poses its own pain for Mario Draghi as he gathers his policymakers. Their decision on Thursday not expected to add more easing this time around .... but with little apparent doubt it's still an option later on.