German Industrial Production Rose Less Than Expected By Christian Vits Sept. 7 (Bloomberg) -- German industrial output rose less than forecast in July as a drop in demand for consumer goods offset increased production of machines and buildings. Output advanced a seasonally adjusted 0.1 percent from June, when it slipped 0.2 percent, the Economy and Technology Ministry in Berlin said today. Economists expected a 0.9 percent gain, the median of 38 forecasts in a Bloomberg News survey showed. German growth is cooling as a gain in the euro makes goods less competitive abroad and borrowing costs at a six-year high restrain lending. Exports unexpectedly fell in July. The European Central Bank left interest rates unchanged yesterday as liquidity problems tied to defaults in U.S. mortgages damps demand. ``The financial market turmoil is certainly a risk factor for investment activity over the medium-term,'' said Juergen Michels, chief European economist at Citigroup in London. ``However, I'm quite confident for the second half of the year as companies still have a huge order backlog.'' Output of investment goods such as machines rose 1.1 percent from June and builders stepped up output by 1.3 percent, today's report showed. Production of consumer goods declined 0.8 percent in the month, according to the ministry. From a year earlier, output, adjusted for the number of working days, rose 4.6 percent. Exports Down The cost of credit rose after European banks acknowledged their vulnerability to rising defaults on U.S. subprime mortgages, aimed at borrowers with a poor credit history. Central banks have added more than $400 billion in liquidity to markets over the past month to ease lending. ``Financial-market volatility and reappraisal of risks over recent weeks have led to an increase in uncertainty,'' ECB President Jean-Claude Trichet said yesterday. ``Given this high level of uncertainty, it's appropriate to gather additional information before drawing conclusions'' on interest rates. The ECB yesterday kept interest rates unchanged after eight increases in the benchmark to 4 percent since late 2005. To be sure, the German economy may struggle to gather speed after a slump in construction held back growth in the second quarter. German exports unexpectedly declined in July, the Federal Statistics Office said today. Manufacturing orders in July dropped the most in 16 years, the ministry said yesterday. U.S. Risk Companies are already grappling with a 3.8 percent gain in the euro against the dollar this year just as the U.S. economy is losing momentum. Americans' confidence this month declined the most in two years, backing the Federal Reserve which expressed concern in a statement on Aug. 17, that risks to growth in the world's largest economy have ``increased appreciably.'' ``The German manufacturing industry has lost considerable momentum this year,'' said Heinrich Bayer, an economist at Deutsche Postbank AG in Bonn, Germany. ``We still consider the outlook as positive, however.'' For now, companies are still adding workers. German unemployment fell for a 19th month in August. Manufacturing sector employment rose 1.6 percent in June from a year earlier to 5.22 million workers, with compensation up 3.6 percent on the year, according to the latest available figures from the Federal Statistics Office. Bayerische Motoren Werke AG, the world's largest maker of luxury cars, DaimlerChrysler AG's Mercedes Car Group and Audi AG, Volkswagen AG's luxury car division, all reported today that sales in August increased. `We don't have any spill-over effects on the real economy so far, there's no reason for concern,'' German Finance Minister Peer Steinbrueck said on Sept. 4. ``The basis is still intact.'' In a two-month comparison, which smoothes out monthly volatility, industrial production rose 0.9 percent in June and July. The ``outlook for a dynamic development in industrial production remains positive,'' the ministry said today. To contact the reporter on this story: Christian Vits in Frankfurt cvits@bloomberg.net Last Updated: September 7, 2007 07:15 EDT