UPDATE 1-Surprise output rise suggests Germany may skirt recession

German industrial output rose unexpectedly in August, data showed, suggesting Europe's largest economy may yet skirt recession.

Industrial output rose by 0.3% on the month, Tuesday's Statistics Office figures showed, against expectations of a drop of 0.1%. The rise was driven by the production of intermediate and capital goods, the Economy Ministry said.

Germany's export-dependent manufacturing sector is already in recession. That has dragged on the economy as a whole, which shrank in the second quarter. Economists expect another slight economic contraction in the July-September period.

Uncertainties linked to Britain's planned departure from the European Union and global trade disputes are starting to hurt Germany's labor market, which has been the backbone of a consumption-driven growth cycle as exports weaken. "Given that industrial output provides us with a deep look into the economic development in the third quarter, one could entertain the idea that the German economy will just about avoid a recession," Thomas Gitzel of VP Bank wrote in a note

July's output reading was revised up to a fall of 0.4% from a previously reported drop of 0.6%.

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