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Industrial production in Germany, Europe's largest economy, rose the most in 15 years in August led by demand for construction.

Output gained a seasonally adjusted 3.4 percent from July, when it slipped 1.6 percent, the Economy Ministry in Berlin said today. That's the biggest gain since August 1993. Economists expected a drop of 0.3 percent, the median of 27 forecasts in a Bloomberg News survey showed. From a year earlier, production adjusted for working days rose 1.7 percent.

The German economy has shown few signs of recovery after shrinking in the second quarter as worsening financial market turmoil pushes up credit costs and weighs on global growth. Still, factory orders rose for the first time in nine months in August and investors were more optimistic last month.

“It wasn't much of a surprise after factory orders,'' said Sylvain Broyer, an economist at Natixis in Frankfurt. “We're only at the beginning of a slowdown. The German economy will fail to grow over the coming one or two quarters.''

Factory orders rose for the first time in nine months in August, data showed yesterday, ending their longest-ever losing streak. The August gain in industrial production is distorted because of the summer holidays, the Economy Ministry said today.

Billions Injected

Banks have recorded almost $600 billion in writedowns and losses tied to the U.S. mortgage market since the start of 2007, forcing the European Central Bank and its counterparts around the world to inject billions into the banking system.

The world's major banks need $675 billion in fresh capital over the next several years to recover from the credit crisis, the International Monetary Fund in Washington said yesterday.

The yearlong credit crunch is already feeding into the economy. German business confidence declined more than expected to the lowest level in more than three years in September and investor sentiment is still close to an all-time low.

The IMF will cut its global growth forecast “pretty significantly'' this month, Managing Director Dominique Strauss- Kahn said on Oct. 4. The European Commission last month already lowered its forecast for the euro-area economy this year and said Germany will slip into a recession (pay day loans).

Gasping

“This is just a breather in a downward trend,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt in an e- mailed note. He expects the German economy to shrink 0.2 percent in the third quarter after contracting 0.5 percent in the second.

General Motors Corp.'s German brand Adam Opel said yesterday it will halt production for three weeks at its plant in Eisenach from next week as the turmoil hurts demand, while another Opel factory in Bochum is completing a two-week closure. Siemens AG, Europe's largest engineering company, plans to book 3 billion euros ($4.1 billion) in costs such as to cut jobs.

“The situation remains challenging,'' Bayerische Motoren Werke AG, the world's largest maker of luxury cars based in Munich, said in a statement today. “The recent escalation in the financial crisis is also affecting consumer confidence in the premium segment.''

Germany's DAX benchmark index has shed 20 percent over the past month, bringing declines to almost 38 percent this year.

Still, oil prices have retreated more than 40 percent from a record of $147.27 a barrel on July 11, leaving companies and consumers with more money to spend. The euro has shed 9 percent against the dollar over the past two months, making exports more competitive in the world's largest economy.

Construction output rose 5.5 percent in August from the previous month and production of investment goods increased 3.9 percent, today's report showed. Output of consumer goods rose 3 percent with production of durable goods surging 8.7 percent. Manufacturing output excluding construction rose 3.2 percent.

Some German companies are still confident on earnings. Porsche SE, the maker of the 911 sports car, said on Oct. 2 it expects “very good'' full-year earnings and a rebound in U.S. sales over coming months.

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